What Does Coefficient of Variation Measure?

The coefficient of variation is used in statistics to measure distribution. It can be found from the ratio of the standard deviation over the mean of a set of numbers to calculate both probability and frequency. When it is used in finance, the mean is considered the expected return.

The coefficient of variation can only be used for a number set on the ratio scale, which is commonly used in the physical sciences and engineering. In finance, it is used to measure the volatility of a financial risk. However, it cannot be used to calculate confidence intervals for the mean. The formula is written in mathematical notation as CV equals sigma divided by mu. When the coefficient of variation is expressed as a percentage, it may be called the relative standard deviation.