Essay Sample on Coefficient of Variation: A Statistical Measure of Dispersion

Introduction

The coefficient of variation is defined as a simple statistical measure of relative dispersion of statistical data points surrounding the mean (Demsetz, & Strahan, 1997). In common terms, the Coefficient of Variation is used primarily to compare the statistical data of dispersion between different series of information. Also, Coefficient of Variation is used by various investors to compare their relative risk and it can be used to any kind of probability distribution or quantitative likelihood.

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2. Explain the terms diversification and correlation in the context of forming portfolios.

In investment and finance planning, portfolio diversification is referred to as a risk management strategy that combines different assets to minimize the overall occurrence of risk in an investment portfolio ("YouTube," 2020). While on the other hand, correlation is a statistic strategy that measures the extent to which two or more securities can move in association with each other. Correlation is used by investors in portfolio management.

2. Describe the meaning of a "state of nature" and explain how this concept is used to provide expected measures of return and risk.

States of nature are defined as a situation in which a particular company or an organization is struggling to meet with fiscal responsibilities to meet its expected return and avert risk. This concept is commonly used by investment and industry premises to measure expected return and risk through technical and fundamental analysis (Fabozzi, & Peterson Drake, 2009). The state of nature usually repeats itself over the next cycles.

3. What are the differences between the weak, semi-strong, and strong forms of the efficient market hypothesis?

Weak Form of Efficient Market Hypothesis states that all the past information is factored into the prices of securities. Whereas Semi-Strong Form of Efficient Market Hypothesis (EMH) suggests that neither technical analysis nor fundamental analysis will provide benefits to an investor, and also new information is priced immediately into the securities (Fabozzi, & Peterson Drake, 2009). While on the other hand, Strong Form EMH implies that all available information both private and the public, is factored into the prices of stocks and that an investor can gain no competitive advantage over the market in general.

References

Demsetz, R. S., & Strahan, P. E. (1997). Diversification, size, and risk at bank holding companies. Journal of Money, credit, and banking, 300-313.from https://www.newyorkfed.org/medialibrary/media/research/staff_reports/research_papers/9506.html

Fabozzi, F. J. & Peterson Drake, P. (2009). Finance: Capital Markets, Financial Management, and Investment Management. New Jersey: Wiley. Retrieved from EBSCO eBooks in the Touro Library.

YouTube. (2020). Retrieved 14 January 2020, from https://www.youtube.com/watch?v=PmZIP8Oux7c