Say i have the returns below for an asset:
Probability = 10% ; Return = 12%
Probability = 8% ; Return = 8%
Probability = 82% ; Return = 10%
So my Expected return is simply : (0,10 * 0,12) * (0,08 * 0,08) * (0,82 * 0,10) = 0,1004 = 10,04%
What confuses me is the usage of percentages in the variance formula.
Should i do :
Variance = 0,10 * (12 - 10,04)^2 …
Or
Variance = 0,10 * (0,12 - 0,1004)^2
Both methods don’t give me the same values at all…