Standard Deviation.
A definition, in plain English — with the books that teach it.
What it means
Standard deviation quantifies how much an investment's returns vary around its average. A higher standard deviation signals greater volatility — returns swing widely above and below the mean. Portfolio managers use it as the primary measure of total risk. In a normal distribution, roughly 68% of returns fall within one standard deviation of the mean and about 95% fall within two. Standard deviation treats upside and downside volatility equally, which is one reason analysts also use downside-specific measures like the Sortino Ratio.
Example
A stock fund has an average annual return of 9% with a standard deviation of 15%. In a typical year, returns fall somewhere between −6% and +24% about 68% of the time. A bond fund with the same 9% average but a standard deviation of 5% offers a much smoother ride.
