Groundlearn / Glossary / Standard deviation
Standard deviation
Also called volatility, vol, sigma. A CFA and FRM term, defined in plain English with the distinction examiners test.
What it means
The square root of variance, in the same units as the data. In finance it is the usual proxy for total risk.
The exam angle
Penalises upside and downside equally, which is its main criticism and the motivation for downside measures like semi-deviation and VaR.
Where it appears in the syllabus
- Quantitative MethodsCFA Level I · exam weight 11–14% · Returns and benchmarks, time value, distributions, portfolio maths, regression.
- Portfolio ConstructionCFA Level I · exam weight 8–12% · Risk and return, the CAPM, IPS construction, behavioural biases.
- Quantitative AnalysisFRM Part I · exam weight 20% · Probability, hypothesis testing, regression, time series, volatility, simulation.
- Market Risk Measurement & ManagementFRM Part II · exam weight 20% · VaR and ES estimation, backtesting, EVT, GARCH, copulas, FRTB.
Related terms
- CorrelationCovariance divided by the product of the two standard deviations, giving a unit-free number between −1 and +1.
- CovarianceA measure of how two variables move together.
- KurtosisThe weight of a distribution’s tails.
- Monte Carlo simulationEstimating a distribution of outcomes by repeatedly drawing random inputs from assumed distributions and recomputing…
- AlphaReturn in excess of what the asset’s risk exposures would predict.
- Arithmetic meanThe sum of the observations divided by their number.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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