How to Calculate Stock Prices With Standard Deviations
Original post by Stephanie Ellen of Demand Media
Knowing the standard deviation for a set of stock prices can be an invaluable tool in gauging a stock's performance. A standard deviation is a measure of how spread out a set of data is. A high standard deviation indicates a stock's price is fluctuating while a low standard deviation indicates that stock's price is relatively stable. If you know a stock's standard deviation you can make wiser investment choices.
Add up all of your stock prices. For example, if you have three stocks worth $8, $9 and $11 then 8 + 9+ 11 =28.
Square the amount you calculated in Step 1 and divide by the number of items in the data set: (28 x 28) / 3 = 261 1/3.
Take your original set of numbers, square them individually and then add them all up: (8 x 8) + (9 x 9) + (11 x 11) = 266.
Subtract the amount you calculated in Step 2 from the amount in Step 3: 266 - 261.3333333333333 = 4.666666666666686
Subtract 1 from the number of items in your data set. In this example, 3 - 1 = 2.
Divide the number in Step 4 by the number in Step 5 and then take the square root of that number: sqrt (4.666666666666686 / 2) = 1.5275252316519499. To find a square root on your calculator, press the "square root" key and then type the number you want to find the square root of. In this example, press the "square root" key and then type "(4.666666666666686 / 2)."
Tips & Warnings
- Many hand held calculators have a standard deviation feature that will calculate the standard deviation from a list of numbers you input. Check your calculator's instruction manual for details.
About the Author
Stephanie Ellen teaches mathematics and statistics at the university and college level. She coauthored a statistics textbook published by Houghton-Mifflin. She has been writing professionally since 2008. Ellen holds a Bachelor of Science in health science from State University New York, a master's degree in math education from Jacksonville University and a Master of Arts in creative writing from National University.