Standard deviation is a measure quantifying the degree of variation in a set of values.

Consider Peter. He has invested in Stock A and Stock B for a year.

Standard deviation will offer a clear picture of the risk associated with stocks and help him measure the volatility of his investments.

As a downside, all uncertainty is considered a risk, even when Peter will have above-average returns.

Assuming based on Peter's returns, the variance for stock A is two point five percent, and for stock B, fifty-six point three percent.

The standard deviation for both stocks is calculated as the square root of variance. So, the standard deviation for stock A is less than for stock B.

It indicates that stock B has a higher level of risk. As Stock B returns vary widely from the average, Peter could experience significant positive or negative fluctuations.

Conversely, a lower standard deviation in stock A suggests that the stock's returns are more consistent and less volatile, implying that Peter has a lower risk level.

This measure helps Peter make informed decisions by assessing the risk profile of different stocks with his risk tolerance and investment goals.