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What is a good use of standard deviation when determining the risk of an investment in...

  1. What is a good use of standard deviation when determining the risk of an investment in common stock?

  1. Helps develop bands around an individual stock's expected value.
  2. Helps determine a portfolio's level of variability from the mean.
  3. Helps establish bands on the covariance between various stocks in the portfolio.
  4. Helps establish the amount of diversification that is needed in a portfolio.
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Answer :option B helps to determine a portfolios level of variability from the mean.

The standard deviation is often used by investors to measure the risk of a stock or a stock portfolio. The basic idea is that the standard deviation is a measure of volatility: the more a stock's returns vary from the stock's average return, the more volatile the stock.

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