Volatility

Volatility is a measurement of the variability of return observed for a given asset or benchmark. Volatility is often used to gauge the risks involved in holding an asset over time, and is traditionally quoted as the annualized standard deviation of daily asset returns. Assets with low volatility are unlikely to change price greatly over a short period of time, while highly volatile assets may swing dramatically in value in the same period. While measures of historical volatility can be instructive, most forward-looking interpretations presume investment performance data follows a normal distribution. Where data does not, this method of interpreting volatility can produce misleading results, and alternate methods, such as histograms or simulations, may provide investors a more accurate understanding of risk.