Question

Clara is looking into investing a portion of her recent bonus into the stock market. While researching different companies, she discovers the following standard deviations of one year of daily stock closing prices. Masterful Pocket Watches: Standard deviation of stock prices =$9.65 Eye Remember Enterprises: Standard deviation of stock prices =$1.05 Based on the data and assuming these trends continue, which company would give Clara a stable long-term investment

Answer 1

Answer:

Eye Remember Enterprises

Explanation:

In finance, standard deviation is the mostly used metric that is used to determine stability or variability and relative risk of investments.

Standard deviation in finance shows the the historical volatility of an investment when it is applied to that investment's annual rate of return.

When the standard deviation of securities is high, the variance between the mean price and price of each security will also be high. Likewise, when the standard deviation of securities is low, the variance between the mean and price of each security will also be low.

The standard deviation of volatile stock is usually high, while a stable stock usually has a low standard deviation.

Therefore, the stock of Eye Remember Enterprises would give Clara a stable long-term investment because the standard deviation of its prices of $1.05 is lower than $9.65 which is the standard deviation of stock prices of Masterful Pocket Watches.