Then, divide that sum by the sample size minus one, which is the variance.

Finally, take the square root of the variance to get the SD.
Standard Error of the Mean
SEM is calculated by taking the standard deviation and dividing it by the square
root of the sample size.

Standard error gives the accuracy of a sample mean by measuring the sample-to-
sample variability of the sample means. The SEM describes how precise the mean of
the sample is as an estimate of the true mean of the population. As the size of the
sample data grows larger, the SEM decreases versus the SD; hence, as the sample
size increases, the sample mean estimates the true mean of the population with
greater precision. In contrast, increasing the sample size does not make the SD
necessarily larger or smaller, it just becomes a more accurate estimate of the
population SD.

Standard Error and Standard Deviation in Finance

In finance, the standard error of the mean daily return of an asset measures the
accuracy of the sample mean as an estimate of the long-run (persistent) mean daily
return of the asset.

On the other hand, the standard deviation of the return measures deviations of
individual returns from the mean. Thus SD is a measure of volatility and can be
used as a risk measure for an investment. Assets with greater day-to-day price
movements have a higher SD than assets with lesser day-to-day movements. Assuming a
normal distribution, around 68% of daily price changes are within one SD of the
mean, with around 95% of daily price changes within two SDs of the mean.

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Related Terms
Using the Variance Equation
Variance is a measurement of the spread between numbers in a data set. Investors
use the variance equation to evaluate a portfolio's asset allocation. more
Standard Deviation
The standard deviation is a statistic that measures the dispersion of a dataset
relative to its mean and is calculated as the square root of the variance. It is
calculated as the square root of variance by determining the variation between each
data point relative to the mean. more
Residual Standard Deviation
The residual standard deviation describes the difference in standard deviations of
observed values versus predicted values in a regression analysis. more
How Standard Errors Work
The standard error is the standard deviation of a sample population. It measures
the accuracy with which a sample represents a population. more
How Sampling Distribution Works
A sampling distribution describes the data chosen for a sample from among a larger
population. more
T-Test Definition
A t-test is a type of inferential statistic used to determine if there is a
significant difference between the means of two groups, which may be related in
certain features. more