# Volatility

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.

1. 15-14=1
2. 11-14=-3
3. 13-14=-1
4. 17-14=3
5. 14-14=0

Square the differences and add the total.

1. (1)^2=1
2. (-3)^2=9
3. (-1)^2=1
4. (3)^2=9
5. (0)^2=0 How to Calculate Volatility?

Stock price of  XYZ Inc.

Day 1. \$15   Day 2. \$11   Day 3. \$13   Day 4. \$17   Day 5. \$14

Find the average between the prices.

1. (\$15+\$11+\$13+\$17+\$14)/5=\$14 Find the population variance and standard deviation

1. Variance (Population Standard deviation)

20/5=4

1. Population Standard deviation

Square root the Variance (Population Standard deviation) = Square Root (4)=2

Therefore the stock price deviates from an average of \$2.

Source: Corporate Finance Institute

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