CFA CFA Level 1 Variance vs Variation

# Variance vs Variation

Topic Resolution: Resolved
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Posts
• hoothoot
Participant
• CFA Level 1
3

Is there a difference between variance vs variation when calculating returns? Or are they interchangeable terms?

I know that the term ‘variance’ is the one used in formula, but the lecture videos I have throw around the term ‘variation’ a lot and I’m not sure if they mean variance or some other concept.

• gontata
Participant
• CFA Level 1
0

Isn’t variance a measure of variation?

• Zee Tan
Keymaster
• CFA Charterholder
0

Variance is a specific, defined term: measure of distribution spread, i.e. how varied a distribution is. This is calculated by measuring the deviation (difference) of each data point from the mean, squaring it, and calculating its average:

population variance = ${\sigma }^{2}=\frac{\sum _{}^{}\left({X}_{i}–\mu \right)}{N}$

Variation‘ is not a specific, defined term, but rather just saying that ‘its datapoints are distributed’.

Variance is in a way a measure of ‘variation’ so a lecturer could end up using this interchangeably when explaining concepts, but it’s unlikely you’ll find a question asking you to calculate the ‘variation’ of a distribution.

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