what is variability 
variability almost by definition is the extent to which data points in a statistical distribution or data set diverge vary from the average value as well as the extent to which these data points differ from each other in financial terms this is most often applied to the variability of investment returns understanding the variability of investment returns is just as important to professional investors as understanding the value of the returns themselves investors equate a high variability of returns to a higher degree of risk when investing understanding variabilityprofessional investors perceive the risk of an asset class to be directly proportional to the variability of its returns as a result investors demand a greater return from assets with higher variability of returns such as stocks or commodities than what they might expect from assets with lower variability of returns such as treasury bills this difference in expectation is also known as the risk premium the risk premium refers to the amount required to motivate investors to place their money in higher risk assets if an asset displays a greater variability of returns but does not show a greater rate of return investors will not be as likely to invest money in that asset variability in statistics refers to the difference being exhibited by data points within a data set as related to each other or as related to the mean this can be expressed through the range variance or standard deviation of a data set the field of finance uses these concepts as they are specifically applied to price data and the returns that changes in price imply the range refers to the difference between the largest and smallest value assigned to the variable being examined in statistical analysis the range is represented by a single number in financial data this range is most commonly referring to the highest and lowest price value for a given day or another time period the standard deviation is representative of the spread existing between price points within that time period and the variance is the square of the standard deviation based on the list of data points in that same time period special considerations variability in investingone measure of reward to variability is the sharpe ratio which measures the excess return or risk premium per unit of risk for an asset in essence the sharpe ratio provides a metric to compare the amount of compensation an investor receives with regard to the overall risk being assumed by holding said investment the excess return is based on the amount of return experienced beyond investments that are considered free of risk all else being equal the asset with the higher sharpe ratio delivers more return for the same amount of risk 