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   Variance Drain
   















 

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Variance Drain

The difference between mean return and compound return over a period of time (usually a number of years) due to the variance (or variability) of periodic returns. The greater the variance of periodic returns, the more the compound return will fall below the mean return. In general, the compound return will fall below the mean return by about one-half the variance. See also Covariance Assets, Diversification, Geometric Return.

Glossary * V