Volatility

Learn more about Volatility

Volatility is a measure of the variability of a financial asset's returns over time. It measures the magnitude of price fluctuations of a financial asset and thus indicates the amount of risk associated with that asset.

Volatility is an important measure in finance because it is used to evaluate the risk and performance of investments. Investors who are willing to take risks may prefer more volatile financial assets because they generally offer higher returns, but they also carry a higher risk of significant losses. Investors who seek to minimize their risk may prefer less volatile financial assets, which offer lower but more stable returns.

Volatility can be calculated from the price history of a financial asset using various methods. One of the most common methods is to calculate the standard deviation of the asset's returns over a given period. The higher the standard deviation, the greater the volatility.

$$\sigma = \sqrt{\frac{\sum _{i=1} ^{n} {(x_i - \bar{x})^2}}{n-1}}$$

More info : Investopedia

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