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Dispersion

Dispersion

The field of statistics is used across every sector and industry to help people better understand, and predict, potential outcomes. In finance, investors often turn to statistics to gain a sense of how returns on certain assets, or groups of assets, could be distributed. This range of possible investment returns is called dispersion. In other words, dispersion refers to the range of potential outcomes of investments based on historical volatility or returns.

There are two important ways to measure dispersion—alpha and beta—which calculate risk-adjusted returns and returns relative to a benchmark, respectively. By considering the dispersion of possible investment returns and values such as alpha and beta, investors can gain a sense of the risk inherent in a particular security or investment portfolio.

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