How is the Standard Deviation calculated?
It is the standard deviation of the monthly returns of the fund in the specified time period, for example 3 years. Since the underlying monthly returns are expressed as percentage points, so are the units of the standard deviation. For example, if a fund has a mean (average) return of 10% and a standard deviation of 5%, there is a 68% probability that the fund’s return will be between 5% and 15% (10% plus/minus 5%). According to statistical theory, there is a 95% probability that the fund’s return will be within two standard deviations, in this case between 0% and 20% (10% plus/minus 2 times 5% or 10%).
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