Lesson 4 of 8 · All lessons in this module
- Mean, median, mode and outliers
- Quantiles, box plots and their uses
- Range, mean absolute deviation, variance and standard deviation
- Target downside deviation and coefficient of variationVideo lesson
- Skewness and kurtosisVideo lesson
- Scatter plots, covariance and correlation
- Limits of correlation analysis
- Integrated cases: describing one return series from raw data
Lesson 4 of 8 · 13 min
Target downside deviation and coefficient of variation
Target downside deviation measures only the risk of falling short of a target, and the coefficient of variation scales risk by return so that different assets can be compared.
In short
- Standard deviation counts upside and downside surprises alike; investors mostly worry about the downside.
- Target downside deviation (target semideviation) uses only returns below a target B, but divides by the full sample's n − 1.
- Raising the target puts more observations below it and enlarges their shortfalls, so the semideviation rises.
- Coefficient of variation is risk per unit of mean return: lower is better.
- CV is scale-free, so it compares data sets with very different means or units; it breaks down when the mean is near zero or negative.
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