Example of Using Standard Deviation Suppose a mutual fund achieves the following annual rates of return over the course of five years: 4%, 6%, 8.5%, 2%, and 4%. The mean value, or average, is 4.9%.

It helps to know (and be assured with certainty) that if some data set follows the normal distribution pattern, its mean will enable us to know what returns to expect, and its standard deviation ...

In addition, the data is always historical, and there's no guarantee that stock returns will follow historical patterns. The assumption that volatility or standard deviation is equivalent to risk ...