How to Calculate Relative Dispersion

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The relative dispersion of a data set, more commonly referred to as its coefficient of variation, is the ratio of its standard deviation to its arithmetic mean. In effect, it is a measurement of the degree by which an observed variable deviates from its average value. It is a useful measurement in applications such as comparing stocks and other investment vehicles because it is a way to determine the risk involved with the holdings in your portfolio.

  • Determine the arithmetic mean of your data set by adding all of the individual values of the set together and dividing by the total number of values.

  • Square the difference between each individual value in the data set and the arithmetic mean.

  • Add all of the squares calculated in Step 2 together.

  • Divide your result from Step 3 by the total number of values in your data set. You now have the variance of your data set.

  • Calculate the square root of the variance calculated in Step 4. You now have the standard deviation of your data set.

  • Divide the standard deviation calculated in Step 5 by the absolute value of the arithmetic mean calculated in Step 1. Multiply it by 100 to get the relative dispersion of your data set in percentage form.

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