Q4: What is the “Coefficient of Variation?
What is the inverse? (Show
equations/diagrams)
What does it tell you...
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Finance
Q4: What is the “Coefficient of Variation?
What is the inverse? (Showequations/diagrams)
What does it tell you in regards to units of risk andreturn?
Why is this important for a risk-averseinvestor?
How would you use these measurements? ShowEquations/Definitions (2)!!
Coefficient of Variation:
Risk-Adjusted Rate of Return (Inverse):
Sharp Ratio:
Jensen Ratio:
Treynor Ratio:
Answer & Explanation
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4.1 Ratings (616 Votes)
Coefficient of variation It is the amount ofrisk per unit of return an investor will assume Its formula isStandard Deviation of the Stock Mean Return For example supposea stock has been giving a mean return of 11 for the past fiveyears and its standard deviation works out to 6 Then itscoefficient of variation is 611 is 055 A coefficient ofvariation is meaningless when used in isolation it is always usedto compare a bouquet of investments So if we also have a stock Bwhose mean return for the past five years is 16 and whose standarddeviation is 625 then CV for Stock B 039 So we can say thatStock B is better in
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