Dividing the volatility, or risk, of the investment by the absolute value of its expected return determines its COV"

Which volatility in stock markets becoming something of a "new normal", discuss the implications of using a coefficient of variation (COV). as described in the article: "What does the coefficient of variation tell investors?"

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Choosing an investment is always a balance between risk and reward. The amount of risk you are willing to take on defines your investing style. The same investor would reject stock XYZ, even though it has the same expected return as the index, because it is more volatile than the index. Bond ABC carries the least risk, but the return is relatively low. Usefulness of COV The flaw in COV, as in most analytical factors, lies in the fact that it is inevitably based on historical data. And, as the prospectuses say, past performance is no guarantee of future results. Nevertheless, COV is extremely reliable when it is applied to the analysis of bonds and other highly stable investments. It may be somewhat less reliable when it comes to stocks, but it is a fact that many stocks, such as pharmaceuticals or technology startups, are by their nature much more volatile than others, such as blue-chip stocks. Therefore, it would make perfect sense to compare the COV of a blue-chip stock fund or an S&P 500 index fund to a pharmaceutical stock. The comparison would give the investor a sense of whether the potential for an outsized return is worth taking a risk. Choosing an investment is always a balance between risk and reward. The amount of risk you are willing to take on defines your investing style. The same investor would reject stock XYZ, even though it has the same expected return as the index, because it is more volatile than the index. Bond ABC carries the least risk, but the return is relatively low. Usefulness of COV The flaw in COV, as in most analytical factors, lies in the fact that it is inevitably based on historical data. And, as the prospectuses say, past performance is no guarantee of future results. Nevertheless, COV is extremely reliable when it is applied to the analysis of bonds and other highly stable investments. It may be somewhat less reliable when it comes to stocks, but it is a fact that many stocks, such as pharmaceuticals or technology startups, are by their nature much more volatile than others, such as blue-chip stocks. Therefore, it would make perfect sense to compare the COV of a blue-chip stock fund or an S&P 500 index fund to a pharmaceutical stock. The comparison would give the investor a sense of whether the potential for an outsized return is worth taking a risk.