STATISTICS

Definition of 'Standard Deviation'

1. A measure of the dispersion of a set of data from its mean. The more spread apart the
data, the higher the deviation. Standard deviation is calculated as the square root of
variance.

2. In finance, standard deviation is applied to the annual rate of return of an investment to
measure the investment's volatility. Standard deviation is also known as historical
volatility and is used by investors as a gauge for the amount of expected volatility.



Definition of 'Standard Error'

The standard deviation of the sampling distribution of a statistic. Standard error is a statistical
term that measures the accuracy with which a sample represents a population. In statistics, a
sample mean deviates from the actual mean of a population; this deviation is the standard error.

Investopedia explains 'Standard Error'

The term "standard error" is used to refer to the standard deviation of various sample statistics
such as the mean or median. For example, the "standard error of the mean" refers to the standard
deviation of the distribution of sample means taken from a population.

The smaller the standard error, the more representative the sample will be of the overall
population. The standard error is also inversely proportional to the sample size; the larger the
sample size, the smaller the standard error because the statistic will approach the actual value.