What measure is Judith LEAST LIKELY to use as part of her analysis?
a) annual range
b) standard deviation
c) beta coefficients
d) indifference coefficients
While Judith is conducting mathematical analysis to evaluate volatility, the measure she is least likely to use is "d) indifference coefficients," as they are not directly related to volatility.
Understanding Judith's Analysis of Securities Volatility
Volatility and Investment Strategy:
Judith wants to invest aggressively for high returns, which means she is seeking securities with higher volatility. Volatility is a crucial metric that shows how much the price of a security fluctuates over time. By analyzing volatility, she can assess the potential risks and returns associated with different securities.
Measures Used in Evaluating Volatility:
Out of the options provided, "d) indifference coefficients" is the measure that Judith is least likely to use. Indifference coefficients are related to decision theory and are not directly used to evaluate volatility. Instead, Judith would prioritize the following measures:
a) Annual Range:
The annual range measures the difference between the highest and lowest prices of a security over a specific period. It provides insight into the price spread and potential volatility of the security.
b) Standard Deviation:
Standard deviation is a statistical measure that calculates the dispersion of data points from the mean. In the context of securities, it quantifies the extent of price fluctuations around the average, offering an assessment of volatility.
c) Beta Coefficients:
Beta coefficients are used to measure the sensitivity of a security's price movements compared to a benchmark, typically the overall market. They show how much a security's price tends to move concerning broader market movements, providing valuable insight into its volatility relative to the market.
In summary, Judith would focus on measures like annual range, standard deviation, and beta coefficients to evaluate the volatility of different securities and make informed investment decisions for high returns.