Variance

Variance measures how spread out a variable’s values are from its mean, the degree of volatility or risk.

Formula:

$$\text{Var}(X)=\frac{\sum (X_i-\bar{X}{)}^2}{n-1}$$

Where:

• $X$ is the variable.
• $X_i$ are individual data points.
• $\bar{X}$ is the mean of $X$.
• $n$ is the number of data points.

In finance, a higher variance means greater uncertainty in returns.

The square root of variance is the Standard Deviation, a more intuitive measure of volatility.