Glossary term
Standard Deviation
A measure of dispersion around an average; the statistical foundation beneath Z-Score, Bollinger Bands, and the Sharpe Ratio.
Standard Deviation measures how widely a set of values disperses around its average, the most common quantification of variability. In finance it is the building block of volatility, and it underlies the Z-Score, Bollinger Bands, and the Sharpe Ratio. Understanding standard deviation is the prerequisite for reading nearly every risk and signal metric Closelook publishes. See Volatility and Money Temperature 101.