Which of the following is the best measure to calculate the volatility of stock market?
Options
ACovariance
BStandard Deviation
CVariance
DAll of the above
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Central Tendency & DispersionMTP June 2023 Series IQuestion 3200 of 473
All Questions Correct Answer
✅ Option b — Standard Deviation
All Options:
- ACovariance
- BStandard Deviation
- CVariance
- DAll of the above
Detailed Solution & Explanation
**Analysis:**
- **Covariance:** Measures the directional relationship between two variables. It does not measure absolute volatility of a single series.
- **Variance:** Variance () measures dispersion but is in squared units — harder to interpret directly.
- **Standard Deviation (SD):** SD is the square root of variance. It is expressed in the same units as the data, making it the most commonly used and interpretable measure of volatility in financial markets.
In finance, **Standard Deviation** is the most widely accepted and standard measure for calculating the volatility of a stock's price.
Hence, **Option B** is the correct answer.
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