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
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
-
How to pay in a cheque
Receiving or writing a cheque has become much less common in recent years as instant bank transfers have grown in popularity. Amid widespread bank branch closures, we explain what to do if you get a cheque, and how you can pay one into your bank account.
-
Crypto assets of seven million UK investors at risk – how to keep yours safe
Cryptocurrency wallet rules make it hard to track down assets after someone has died, even if they leave a will saying who they would like to inherit them