What Is Standard Deviation?
A statistical measure of how much an investment's returns vary from its average return.
The Full Definition
Standard deviation measures how spread out an investment's returns are around its average, making it the most common quantitative measure of volatility. A low standard deviation means returns cluster tightly around the average — more predictable. A high standard deviation means wider swings in both directions. It's a useful way to compare the risk of two investments with similar average returns, since the one with the lower standard deviation delivered a smoother ride to get there.
Real-World Example
The S&P 500 has a long-term annual standard deviation of roughly 15–16%, meaning returns in a typical year commonly fall within about 15 points of the average. An individual small-cap stock might have a standard deviation of 30% or more — capable of much larger swings in either direction.