When we compare the risk of two investments that have the same expected return, the coefficient of variation:
A) always gives us a value between 0 and 1.
B) adjusts for the correlation between the two instruments.
C) gives conflicting results compared to the standard deviation.
D) provides no additional information when compared with the standard deviation.

Question

Quizplus · Accepted Answer

The coefficient of variation (CV) is a standardized measure of dispersion of a probability distribution or frequency distribution. It is often used to compare the risk (volatility) of investments that have different average returns. Unlike the standard deviation, the CV standardizes the measure of risk by dividing the standard deviation by the mean, allowing for a direct comparison of the relative riskiness of investments with differing expected returns. Therefore, it provides additional information by showing the risk per unit of return, which is not directly evident when only comparing standard deviations.

When We Compare the Risk of Two Investments That Have