Advertisement

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement

Recommended

Economic indicators
Glossary

Economic indicators

An economic indicator is any statistic that allows us to analyse how the economy is performing or is likely to perform in future.
31 Jul 2020
Modern monetary theory (MMT)
Glossary

Modern monetary theory (MMT)

Modern Monetary theory, or MMT, has become popular on the left, both in the UK and abroad. (Wags say that it stands for "magic money tree".) 
14 Jul 2020
Modern monetary theory (MMT)
Glossary

Modern monetary theory (MMT)

Modern monetary theory, or MMT, has become popular on the left, both in the UK and abroad. (Wags say that it stands for "magic money tree".) 
14 Jul 2020
Barbell strategy
Glossary

Barbell strategy

A “barbell… investment strategy means weighting a portfolio towards the two extreme ends of an asset class with nothing in the middle.
8 Jul 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”
Investment strategy

The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”

Merryn talks to economist and author Andrew J Scott and discusses how we can profit from the "longevity dividend" as we live longer; why we need to re…
6 Aug 2020