Volatility
Volatility refers to the fluctuations in the price of a security, commodity, currency, or index.
Volatility refers to fluctuations in the price of a security, commodity, currency, or index. The higher the volatility, the riskier the asset is deemed to be. That's because the price of the security can change dramatically over a short amount of time and it can go in either direction. In contrast, lower volatility means that the asset's value does not fluctuate dramatically, and is relatively steady.
One general way to measure volatility is to look at the beta coefficient (see entry on "beta"). This measures the historical movement of a financial instrument against a suitable baseline (a FTSE 100 stock against the FTSE 100, for example). A stock with a beta of 1.0 would be expected to move roughly in line with the market.
However, for long-term investors, volatility is arguably of limited use the biggest risk to a long-term investor is the risk of permanent capital loss, rather than temporary ups and downs in a stock's price, for example.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
-
Number of ISA millionaires triples in three years
The number of people with £1 million in their ISAs has tripled in three years to reach 3,180. But could next week’s Budget put an end to future ISA millionaires?
By Ruth Emery Published
-
IMF upgrades UK growth forecasts ahead of Budget - here is what it means
The upgrade comes ahead of chancellor Rachel Reeves's first Budget on 30 October, where she intends to explain how she will further boost UK economic growth
By Chris Newlands Published