Coefficient Of Variation - CV

It’s the Reese’s Peanut Butter Cup of stats...two great statistics that work great together. When we take the standard deviation of a data set (like investment returns) and divide it by the mean of the same data set, we create the coefficient of variation.

In the world of finance, as the coefficient of variation gets smaller, so too does the risk in investing compared to the possible return from investing. In general, high-reward investments are tied to high risk. Investments with a lower coefficient of variation are more likely to mitigate the risk for the same reward.