Standard Deviation Ratio to Rate of Return (ROR)
Your Standard Deviation should be 60% or less of your historical rate of return, if higher you are taking on too much risk for your rate of return.
Standard Deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data is, the higher the deviation. Standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility (risk).
Example: Rate of Return of 10% with a Standard Deviation of 10%
STD STATISTICS
1 - Standard Deviation from the mean represents approximately 68% of the time
the red areas
2 - Standard Deviations from the mean represents approximately 95% of the time
the green areas
3 - Standard Deviations from the mean represents approximately 99% of the time
the blue areas