Updated on March 13, 2023
Volatile or Volatility is a common term associated with stock markets. It is used to describe the fluctuation in prices of stocks or securities. Statistically speaking, it is a measure of the dispersion or scattering of returns for a stock, security or market index. This means that the price of the security can change dramatically over a short time period in either direction and that too, in a wide range. A lower volatility indicates greater stability in price and less fluctuation within a narrow range. Higher volatility signifies greater risk.
Measure of Volatility
Volatility can be measured using the standard deviation or variance.
Variance is used to check the dispersion or spread of returns around the mean of a value (or security’s price). Volatility is a measure to check this variance during a specific period of time. Standard Deviation is the square root of variance. High Standard deviation means greater volatility and vice versa.