M* JR Defends Standard Deviation (SD)The notion of SD is so ancient (and independent of the MPT) that many write it off too easily. M* JR offers 3 points in the defense of SD:
1. JR's own comparative study of Downside Capture and SD concluded that both provide quite similar information. But the SD is much easier to calculate.
2. Don't blame SD for missing hidden risks, black swans, etc. Only deep fundamental analysis can detect those, if at all. Anyway, TR misses that too, so what?
3. SDs moderate over long periods of time. So, 15-yr SD should be lower than 3-yr SD. This is useful in portfolio design.
So, JR seems to be saying that there are more positives than negatives for SD, so quit complaining.
Finally, JR is implicitly referring to the SD of returns, not of prices (used for Bollinger Bands, BBW, etc).
https://www.morningstar.com/columns/rekenthaler-report/standard-deviation-is-an-imperfect-measure-not-useless
