Let's take Project One once again.

Starting with the return of 0%,

the distance from the expected return of 10% is minus 10%.

Step 2, we square that number and get 1%.

Step 3, we multiply that number, 1%,

by the likelihood that the initial return would occur,

which is 20% and we get 0.2%.

Doing this for each of the three possible outcomes of Project One yields a total

sum of square differences of 0.4%,

which is what we refer to as the project's variance, as denoted by sigma squared.

The square root of this number is 6.32%, which is the project's standard deviation.

So we go on and we repeat this for Projects Two and Three.

And as our intuition told us earlier,

we find that Project Two is riskier than Project One.

And Project Three is riskier than Project Two.

Project One has a standard deviation of returns of 6.32% per annum.

Project Two a standard deviation of returns of 10.95% per annum,

and Project Three 19.9% per annum standard deviation.

Well that's well in good if you're the CEO of a large listed company,

who can go order his or her minions, to go off and

collect the intricate data required to build the histograms needed to

then estimate project risk and expected return.

But what if your out on your own?

Lets say you're trying to get a hand on the risk of the shares

of different companies.

Well the good news is that's relatively straight forward.