How to calculate Coefficient of Variation in context to Finance
It helps us in the investment selection process that’s why it is important in terms of finance. In the financial matric, it shows us the risk-to-reward ratio means here the standard deviation/volatility shows the risk of the investment and mean is shown as the expected reward of the investment. The investors in the company identify the risk-to-reward ratio of each one of the security to develop an investment decision. In this, the low coefficient is not favourable when the average expected return is below the value of zero
The formula for the calculation of the coefficient of variation in the context of finance :
Coefficient of variation = σ/μ × 100%
Where,
σ – the standard deviation
μ – the mean
How to calculate Coefficient of Variation?
How to calculate the Coefficient of Variation? Statistics is the process by which the data is collected and analyzed. The coefficient of variation in statistics is explained as the ratio of the standard deviation to the arithmetic mean, for instance, the expression standard deviation is 15 % of the arithmetic mean is the coefficient variation.
This article provides the steps to calculate the coefficient of variation along with solved examples and practice problems.
Table of Content
- What is the Coefficient of variation?
- Steps to Calculate the Coefficient of Variation
- How to calculate Coefficient of Variation in context to Finance
- Sample Problems on How to calculate Coefficient of Variation
- Practice Problems on How to calculate Coefficient of Variation?
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