Standard deviation
Principles of Finance glossary · Risk, Return & Portfolio Theory
Definition
The square root of variance; a measure of dispersion.
Standard deviation in plain English
Imagine you and your friends usually leave for school around 8:00, but some days it's 7:50 and other days 8:15. Standard deviation is one number that captures how spread out those times tend to be: small means everyone's consistent, large means it's all over the place. In finance it measures how much an investment's returns bounce around their average, which is exactly what people mean by 'risky' -- a savings account has a tiny standard deviation, a hot stock has a big one. It's found by taking the variance (the average of the squared distances from the mean) and then taking its square root, which conveniently puts the answer back into the same units as the thing you measured.
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