An investor measuring risk as the variability of returns would likely use which metric?

The metric that an investor utilizes to measure risk as the variability of returns is standard deviation. Standard deviation quantifies how much individual return outcomes deviate from the mean return, providing a clear representation of return volatility. A higher standard deviation indicates a greater dispersion of returns, signaling a higher risk, while a lower standard deviation suggests that returns are more clustered around the mean, indicating lower risk.

Standard deviation is a widely accepted statistical measure for evaluating total risk in a portfolio or investment and serves as a fundamental building block in various financial models and analyses, including those used in portfolio theory. This makes it particularly useful for investors who want to understand the level of uncertainty or potential fluctuation in their investment returns.

In contrast, while other metrics offer insights into risk, they do not primarily focus on variability of returns in the same way. The Sharpe ratio, for example, measures risk-adjusted return but incorporates the risk-free rate and focuses more on performance rather than solely on volatility. Downside deviation targets downside risk specifically, assessing only the extent of losses rather than overall variability in returns. VaR, or Value at Risk, quantifies the potential loss in value of an asset or portfolio under normal market conditions over a set time frame and does not measure the overall