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The interpretation of Coefficient of Variation

Forums › ACCA Forums › ACCA APM Advanced Performance Management Forums › The interpretation of Coefficient of Variation

  • This topic has 1 reply, 2 voices, and was last updated 1 month ago by mrjonbain.
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  • December 16, 2022 at 2:11 am #674718
    tang.kt
    Participant
    • Topics: 13
    • Replies: 11
    • ☆

    Hi Tutor,

    Scenario:
    Coefficient of variation = Standard deviation / Expected value (mean)
    Investment X = 15% / 20% = 0.75, or 75%
    Investment Y = 20% / 25% = 0.80, or 80%

    I understand the interpretation of the risk to reward ratio, i.e. the higher the more relative to the deviation = riskier, but what does coefficient of variation actually tell us, for example:

    Does it mean there is a 75% chance that the expected value will deviate by 15%?

    or

    Does it mean that the expected value will most probably deviate by 75% of the 15% (i.e. 11.3%)?

    Looking forward for your reply.

    Many thanks.

    Best regards,
    Kenny

    December 16, 2022 at 4:16 am #674724
    mrjonbain
    Moderator
    • Topics: 1
    • Replies: 1557
    • ☆☆☆☆☆

    This forum is primarily designed for students to help one another. If you want to ask the tutor something directly please use the ask the tutor forum-

    https://opentuition.com/forum/ask-acca-tutor-forums/ask-the-tutor-acca-advanced-financial-management-afm-exams/

    Hope this helps.

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