Coefficient of variation (CV)

A normalized measure of dispersion of a probability distribution, only for non-zero mean and most useful for variables that are always positive. The lower an asset’s CV, the more attractive it is in risk per unit of return.

CV = σ / μ

Advantages:

• Enable comparison between different distribtuions and means

Disadvantages:

• When the mean is near zero, the coefficient of variation is sensitive to small changes in the mean, limiting its usefulness.
• Unlike the standard deviation, it cannot be used to construct confidence intervals for the mean.