As the sample size "decreases", the standard deviation of the population of all sample means decreases.
What is standard deviation?
Standard deviation is a statistical standard measure in finance that, when applied to an investment's annual rate of return, sheds light on its historical volatility.
Some key features regarding the standard deviation are-
- The more the standard deviation of a security, the greater the variance among each price and the mean, indicating a wider price range.
- A volatile stock, for example, does have a large standard deviation, whereas a stable blue-chip stock has a low deviation.
- A square root of value deduced from correlating data points to a population's collective mean is used to calculate standard deviation.
The formula is as follows:
Standard Deviation = [tex]\sqrt{\frac{\sum_{i=1}^{n}\left(x_{i}-\bar{x}\right)^{2}}{n-1}}[/tex]
Where;
[tex]x_{i}[/tex] is the ith point of the data.
[tex]\bar{x}[/tex] is the mean value
n is the number of data points
Standard deviation is a valuable tool in trading and investment strategies because it helps quantify market and security volatility—as well as forecast performance trends.
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