/ factorpad.com / fin / glossary / volatility.html
An ad-free and cookie-free website.
Beginner
Investment Volatility is a general term referring to the variability or dispersion of a measured variable, like the return on an investment or portfolio. While there are many volatility measures, investment professionals often associate the term investment volatility with standard deviation. Other volatility measures include: beta, value at risk and semi-deviation.
In Finance, all other things being equal, lower volatility is preferred over higher volatility. Investment volatility, when measured as standard deviation, and indirectly variance, is always zero or positive. Standard deviation is the square root of variance.
Synonyms: variability, dispersion, standard deviation
For context, the study of investment volatility ranges from easy to to difficult. As a starting point most investors begin with standard deviation because it is the easiest measure to evaluate and is widely used across many fields of study.
For investment analysis and the measurement of risk-adjusted returns, the popular Sharpe Ratio uses the standard deviation as the basis for evaluating risk of an investment or portfolio.
Jim: We should always clarify which measure
we're using when we refer to investment volatility.
Kay: Agreed. In the trading world, the term
normally refers to options volatility.
Many terms have 4-5 minute videos showing a derivation and explanation. If this term had one, it would appear here.
Videos can also be accessed from our YouTube Channel.
If this term had a video, the script would be here.
Click box for answer.
True. This means that volatility tends to cluster.
Standard Deviation
Still unclear on Investment Volatility. Check out the Quant 101 Series of 27 financial modeling tutorials in Excel where the focus is on risk measures.
Our trained humans found other terms in the category investing concepts you may find helpful.
Join the conversation at the FactorPad YouTube Channel. Subscribe and follow @factorpad on Twitter for updates.
/ factorpad.com / fin / glossary / volatility.html
A newly-updated free resource. Connect and refer a friend today.