Standard Deviation

Standard deviation measures how much an investment's returns vary around their average, and it is the most common statistical stand-in for volatility in finance. A higher standard deviation means returns swing more widely from period to period; a lower one means returns cluster more tightly around the average.

It is the input behind several widely used tools, including Bollinger Bands (built from a moving average plus and minus a multiple of standard deviation) and the Sharpe and Sortino ratios, which both divide excess return by a measure of volatility to judge risk-adjusted performance.