It gives us some idea of the confidence with which we can predict the numbers. This article gives a quick look at standard deviation and how it might be used to allocate assets according to our tolerance for risk. Using standard deviation to allocate assets First, a little bit of maths revision. Mathematicians, statisticians and anyone who has been to school in the last few years probably don't need to read this bit. The standard deviation of a set of numbers tells us about the variability of those numbers.
Lets look at two sets of numbers.
The big difference between these sets of numbers is their standard deviation. That just tells us that the second set is much more variable than the first. If you had a bit of risk capital to toss away and you wanted the opportunity to make some real money you might try set no. 2. But if you had any interest at all in capital preservation you would opt for set no. 1. Standard deviation does make some intuitive sense as a measure of risk.