What is Volatility?
Volatility is a measure of the rate at which price of a security increases or decreases for a given set of returns. The market will be more volatile if the price fluctuates more frequently. It indicates the risk and is a normal part of investing.
Use the average price to find the difference between the prices.
- 15-14=1
- 11-14=-3
- 13-14=-1
- 17-14=3
- 14-14=0
Square the differences and add the total.
- (1)^2=1
- (-3)^2=9
- (-1)^2=1
- (3)^2=9
- (0)^2=0
Add Total 1+9+1+9+0=20
How to Calculate Volatility?
Stock price of XYZ Inc.
Day 1. $15 Day 2. $11 Day 3. $13 Day 4. $17 Day 5. $14
Follow our Step Method.
Find the average between the prices.
- ($15+$11+$13+$17+$14)/5=$14
Find the population variance and standard deviation
- Variance (Population Standard deviation)
20/5=4
- Population Standard deviation
Square root the Variance (Population Standard deviation) = Square Root (4)=2
Therefore the stock price deviates from an average of $2.