In most fields, lower values for the coefficient of variation are considered better because it means there is less variability around the mean. Coefficient of Variation vs. Your email address will not be published. Skip to content Menu. Posted on May 18, by Zach. For example: A CV of 0. A CV of 1 means the standard deviation is equal to the mean.
What is a Good Coefficient of Variation? Finance: In the finance industry, the coefficient of variation is used to compare the mean expected return of an investment relative to the expected standard deviation of the investment. Your Practice. Popular Courses. Financial Analysis How to Value a Company.
Key Takeaways The coefficient of variation CV is a statistical measure of the relative dispersion of data points in a data series around the mean.
The lower the ratio of the standard deviation to mean return, the better risk-return trade-off. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Related Terms Volatility Volatility measures how much the price of a security, derivative, or index fluctuates. Sharpe Ratio Definition The Sharpe ratio is used to help investors understand the return of an investment compared to its risk. Standard Deviation The standard deviation is a statistic measuring the dispersion of a dataset relative to its mean and is calculated as the square root of the variance.
Risk Management in Finance In the financial world, risk management is the process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions.
ETFs can contain investments such as stocks and bonds. What Is the Correlation Coefficient? The higher the CV, the greater the dispersion in the variable. The CV for a model aims to describe the model fit in terms of the relative sizes of the squared residuals and outcome values.
The lower the CV, the smaller the residuals relative to the predicted value. This is suggestive of a good model fit. The CV for a variable can easily be calculated using the information from a typical variable summary and sometimes the CV will be returned by default in the variable summary.
We demonstrate below how to calculate the CV in Stata. Can coefficient of variation be greater than 1? What is a bad coefficient of variation? How do you interpret standard deviation and coefficient of variation? Can the coefficient of variation be negative? Why coefficient of variation is better than standard deviation? How do you calculate the Z score?
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