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Explain Why We Need to Square Deviations Before Calculating the Variance

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Essay

Explain why we need to square deviations before calculating the variance of a variable.


Definitions:

Beta

A measure of a security's or portfolio's volatility, or systematic risk, in comparison to the market as a whole.

Risk-free Rate

The risk-free rate is the theoretical return on an investment with zero risk, often represented by the yield on short-term government securities.

CAPM

Capital Asset Pricing Model; a model that describes the relationship between systematic risk and expected return for assets.

Holding Period

The duration of time an investment is held before it is sold, impacting the capital gains tax implications.

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