What is Volatility?

Volatility measures how much a price swings, usually as the annualised standard deviation of returns. A volatility of 15% is typical for a broad stock index; long Treasuries are around 12–15%; Bitcoin is often 50% or more.

Volatility is the most common definition of risk in finance. It drives position sizing in professional portfolios: more volatile assets get smaller weights so that each contributes a similar amount of risk.

Volatility tends to cluster — calm periods follow calm periods, turbulent periods follow turbulent ones — and it usually jumps when markets fall.

By Dr. Harry Hamann