Practice Quiz

FRM Financial Risk Manager Practice Test

Category - Risk

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What is the meaning of standard deviation? Select all that apply.
  1. It measures the degree of spread. The bigger it is, the more likely to find oneself from the mean.
  2. It is the square root of the variance.
  3. It provides a crude measure of risk.
  4. All of the above.
Explanation
The standard deviation provides a rough measure of risk by measuring the degree of spread from the mean. It is also the square root of the variance.

Key Takeaway: When a portfolio has low standard deviation, it means that it is less risky. When the portfolio has high standard deviation, it is more risky. Standard deviation is a measure of “volatility.”
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