Performance & risk

Volatility

Return dispersion, commonly measured by standard deviation and annualized.

01 / Definition

What Volatility Means

Volatility describes how widely returns vary around their average. Historical volatility uses observed returns; implied volatility is inferred from option prices.

02 / Calculation

Volatility Formula

Annualized volatility ≈ StdDev(periodic returns) × √periods per year

03 / Worked Example

How to Read the Result

Daily standard deviation of 1.2% becomes about 19.0% using the common √252 annualization convention.

04 / Boundaries

Limitations

It treats upside and downside variation alike.
Volatility changes across market regimes.
Frequency and annualization conventions affect the estimate.

05 / Questions

Common Questions

Does 20% volatility mean a 20% loss?

No. It is a dispersion estimate, not a directional forecast or loss ceiling.