Coefficient of variation
The coefficient of variation compares standard deviation with the mean, usually as SD÷mean×100%. It expresses spread relative to the size of a positive mean and can help compare similarly meaningful quantities on different scales. It is unsuitable or misleading where the mean is zero, near zero or negative, or the measurement scale has an arbitrary zero. It is a descriptive risk comparison, not an automatic rule for every investment decision.
Worked example
Product A has mean demand 100 and standard deviation 20, giving CV 20%. Product B has mean demand 400 and standard deviation 60, giving CV 15%. B has higher absolute variability but lower variability relative to its mean.
Common mistake
Ranking relative variability using SD alone or applying CV mechanically to a zero or negative mean.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |