The coefficient of variation measures the dispersion of the data points or distribution around the mean. Using the coefficient of variation, we can compare two data series with drastically different means or different units of measurement. The coefficient of variation for a sample and a population is expressed as a percentage of the ratio of standard deviation to the mean.
The coefficient of variation is a practical statistical tool in finance. It allows investors to assess the volatility or risk and the returns associated with their investments. An investment with a low coefficient of variation has lower volatility or risk, and hence it is safer than one with a high coefficient of variation.
