volatility · σ
Standard deviation (volatility)
The statistical measure of how widely a fund's returns vary around their average. The input to the FMA risk indicator: weekly returns over five years, mapped to a 1–7 band.
Standard deviation is a statistical measure of dispersion: how far a fund's periodic returns spread around their average. Higher standard deviation means a wider range of outcomes — more upside in good periods, more downside in bad periods — and is the conventional shorthand for "volatility".
NZ's FMA-prescribed risk indicator uses the standard deviation of a fund's weekly returns over the past five years, annualised, and maps the result onto a 1–7 band. A cash fund typically lands at band 1 (σ < 0.5% p.a.); a NZ-equity or global-equity fund typically lands at band 5 or 6 (σ 15–25% p.a.); a concentrated single-sector or thematic fund can land at band 7.
Standard deviation captures past variability, not forward risk. It treats upside and downside as symmetric and does not distinguish between sustained drawdowns and occasional spikes. Downside-only measures (max drawdown, downside deviation, Sortino ratio) are complementary metrics.
Related terms
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FMA risk indicator
Risk indicator (1–7 scale)
A standardised 1–7 risk score every NZ retail managed fund must publish, calculated from the fund's price volatility (standard deviation of weekly returns) over the past five years.
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QFU · Fund Update
Quarterly Fund Update (QFU)
A standardised FMA-mandated quarterly report each NZ retail managed fund publishes, summarising fees, returns, risk indicator, asset mix, top-10 holdings and fund size.
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sharpe-ratio
Sharpe ratio
A risk-adjusted return measure: excess return (fund return minus the cash rate) divided by the standard deviation of returns. Higher means more return per unit of volatility.
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max DD · drawdown
Maximum drawdown
The largest peak-to-trough percentage decline in a fund's unit price over a measurement window. Captures worst-case past loss in a way standard deviation does not.