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Finance Dictionary

Volatility

Definition

A statistical measure of the dispersion of returns for a given security or market index.

Deep Dive

Volatility is a statistical measure quantifying the degree of variation of a trading price series over time, representing the speed and magnitude of price changes for a security or market index. It is commonly measured by the standard deviation or variance of returns. High volatility indicates that an investment's price can change dramatically over short periods, implying higher risk but also potentially higher reward. Conversely, low volatility suggests relatively stable prices and lower risk.

Examples & Use Cases

  • 1A tech stock's price swinging by 5% daily after a major product announcement
  • 2The S&P 500 index dropping 3% in a single day following an unexpected inflation report
  • 3Cryptocurrency prices exhibiting extreme hourly fluctuations during a market frenzy.

Related Terms

RiskStandard DeviationBeta

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