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Standard Deviation:
A measure of the dispersion of a set of data from its mean. The more spread apart the data is, the higher the deviation. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility (risk).
Volatility:
A statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.
Drawdown:
The peak-to-trough decline during a specific time period of an investment or fund. It is usually quoted as the percentage between the peak and the trough.
Sharpe Ratio:
A ratio developed by Nobel Laureate Bill Sharpe to measure risk-adjusted performance. It is calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The higher the ratio the better.
Alpha:
The premium an investment portfolio earns above a certain benchmark. A positive alpha indicates that the investors earned a premium over that benchmark.
Beta:
A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
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