• Financial Math

  • An overview of Corporate Finance
  • Statistics for Finance
  • Basic Financial Terms
  • Financial Portfolio Analysis

Variance and Standard Deviation

Consider the two data sets:

Data Set 1:	4, 3, 5, 7, 6	Mean: 5
Data Set 2:	2, 10, 1, 9, 3	Mean: 5

Both the data sets have same mean (or same average), but the points in data set 2 are more spread out than the points in data set 1.

Standard Deviation
The standard deviation is a measure of how spreads out points are from the mean. The standard deviation is the square root of variance.

Variance
Variance is the average of the squared differences from the mean. For example, the variance of data set 1 is given as

And, the variance of data set 2 is given as

Variance is denoted by the symbol , and its formula in summation term is given by

And, as standard deviation is square root of the variance. So

Hence, we denote variance by , and standard deviation by .