Volatility
How widely an investment's returns swing around their average, usually measured as a standard deviation.
Volatility is the typical size of an investment's moves, measured as the standard deviation of its returns. By that measure broad US stock indexes have historically swung around 15 to 20% a year, bond funds well below that, and single stocks far above it.
It counts moves in both directions, which is why it is used as a stand-in for risk rather than a definition of it. A volatile holding can still recover, while a steady one can decline slowly, and the measure registers the first far more than the second.
Over a single year volatility dominates the result, and over decades the average return does. One year of stock returns can land almost anywhere between a large loss and a large gain, while thirty-year annualized returns have historically fallen within a much narrower range.
Worked through
What the measure captures
- The typical size of moves, up and down alike
- Nothing about direction, or about the long-run average return
- Nothing about permanent loss, such as a company failing
Where this lives in Promi
Dashboard. The Markets card carries the VIX, the market's own estimate of the volatility ahead.
Related in Investments & Portfolio
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