- Volatility refers to the amount of uncertainty related to the size of changes in price
- Volatility is often associated with risk: the higher the volatility, the riskier the asset
- The higher the volatility the harder emotionally it is to not worry
What is volatility? How is it computed?
-> Real life examples
Volatility is a key factor to take into account when building a portfolio in order to qualify if an asset is more or less risky.
Volatility appears in Modern Portfolio Theory and has gained a wide acceptance across the financial industry.
What is volatility?
Volatility refers to the amount of uncertainty related to the size of changes in price.
It is the degree of variation of a trading price series over time, in particular an asset is called volatile when there are big swings in price in either directions.
Volatility is relevant because:
The wider the swings in an investment's price, the harder emotionally it is to not worry
It can define position sizing in a portfolio
Price volatility presents opportunities to buy assets cheaply and sell when overpriced
Mathematical Definition
The volatility is just the standard deviation of the returns.
The standard deviation is a measure of the amount of variation of a quantity, the returns. It reflects the average amount a stock's price has differed from the mean over a period of time.
Volatility is without a unit and is expressed as a percentage. While variance captures the dispersion of returns around the mean of an asset in general, volatility is a measure of that variance bounded by a specific period of time.
We can report daily volatility, weekly, monthly, or annualized volatility
For practical examples see plots and figures in the full article
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[ 4.3 ms ] story [ 11.2 ms ] thread- Volatility refers to the amount of uncertainty related to the size of changes in price
- Volatility is often associated with risk: the higher the volatility, the riskier the asset
- The higher the volatility the harder emotionally it is to not worry
What is volatility? How is it computed? -> Real life examples
Volatility is a key factor to take into account when building a portfolio in order to qualify if an asset is more or less risky. Volatility appears in Modern Portfolio Theory and has gained a wide acceptance across the financial industry.
What is volatility?
Volatility refers to the amount of uncertainty related to the size of changes in price. It is the degree of variation of a trading price series over time, in particular an asset is called volatile when there are big swings in price in either directions.
Volatility is relevant because:
The wider the swings in an investment's price, the harder emotionally it is to not worry It can define position sizing in a portfolio Price volatility presents opportunities to buy assets cheaply and sell when overpriced
Mathematical Definition
The volatility is just the standard deviation of the returns. The standard deviation is a measure of the amount of variation of a quantity, the returns. It reflects the average amount a stock's price has differed from the mean over a period of time. Volatility is without a unit and is expressed as a percentage. While variance captures the dispersion of returns around the mean of an asset in general, volatility is a measure of that variance bounded by a specific period of time. We can report daily volatility, weekly, monthly, or annualized volatility
For practical examples see plots and figures in the full article