Volatility

The amount of uncertainty associated with the size of change in a security or market index’s value. In statistics, volatility is determined by the standard deviation or variance of returns for the same security or index. A higher volatility means that a security’s value is more unpredictable, typically carrying a greater amount of risk. A lower volatility means that the security’s value does not fluctuate as much, and tends to be more stable.

For example, say Security A has fluctuated in value from $50 to $120 three times this year, while Security B has fluctuated between $70 to $80 three times as well. Given that Security A has changed in value at a higher variance from its average during this time period, it is said to be more volatile, or more unpredictable.

 

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