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For MAR and the NYSE index, determine the monthly average return on the share price, the related variance and standard deviation. What does the standard deviation measure? Compare the standard deviation and monthly average returns of the NYSE index and MAR. What do your calculations suggest about the relationship between risk and return? (12 marks)
Definition of 'Standard Deviation' A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance
Investopedia explains 'Standard Deviation' Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns. | Definition of 'Risk-Return Tradeoff'The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with low potential returns, whereas high levels of uncertainty (high-risk) are associated with high potential returns. According to the risk-return tradeoff, invested money can render higher profits only if it is subject to the possibility of being lost. | | Investopedia explains 'Risk-Return Tradeoff'Because of the risk-return tradeoff, you must be aware of your personal risk tolerance when choosing investments for your portfolio. Taking on some risk is the price of achieving returns; therefore, if you want to make money, you can't cut out all risk. The goal instead is to find an appropriate balance - one that generates some profit, but still allows you to sleep at night. |

Monthly Share price | | | | | from 02/01/08 - 03/12/12 | | | | |

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