What is Volatility?
How much an asset’s price moves around, up and down, over time.
Educational — not investment advice
Volatility measures the size of an asset’s price swings, usually as the standard deviation of its returns. High volatility means large, frequent moves in both directions; low volatility means a smoother ride.
It is the raw material behind many other risk numbers — beta, VaR and the Sharpe ratio all lean on it in some form.
The trap most people miss
Volatility is symmetric — it counts big up-moves as "risk" too — and it is calculated from the past. A quiet asset can be building up hidden, one-directional risk that low measured volatility completely misses.
Frequently asked about Volatility
Is high volatility bad?
Not inherently. It means bigger swings, which is riskier for money you may need soon, but it is also where larger gains (and losses) come from.
How is volatility annualized?
Short-period volatility is scaled up (roughly by the square root of the number of periods in a year) so figures are comparable on an annual basis.
Related terms
Guides that use Volatility
See your own portfolio’s volatility
Add what you hold and Tradune measures the annualized volatility of your daily time-weighted returns once it has enough daily history, next to Sharpe and max drawdown.
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This definition is for educational purposes only and is not investment, tax, or financial advice. Concepts are explained in general terms; how they apply to your situation can differ. Always do your own research.