What is Volatility?

What is Volatility?

By moneyredpill | MoneyRedPill | 31 Mar 2020


Volatility is a statistical measure of the variance of returns or price fluctuations for a security or market index. Volatile assets are considered riskier than less volatile assets because the price is expected to be less predictable and have larger price swings. Volatility is commonly measured using the standard deviation or variance of returns from that same security or market index. 

For example, when a market rises and falls >1% over a period of time, it is referred to as a "volatile" market. Volatility is also a key factor when determining the pricing of a security’s options contracts. There are multiple ways to calculate an asset’s volatility, such as beta coefficients, option pricing models, and standard deviations of returns.

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