Volatility Calculator
Calculate the historical volatility of a stock or asset.
Annualized Volatility
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Measuring Market Risk with Volatility
Volatility is a measure of how much the price of a financial asset varies over time. A higher volatility indicates greater price swings and is often associated with higher risk. This calculator computes the historical volatility based on a series of past prices you provide. The result is an annualized percentage that represents the asset's standard deviation, a key input for options pricing and risk management strategies.
Frequently Asked Questions (FAQ)
What is historical volatility?
Historical volatility is a statistical measure of the dispersion of returns for a given security or market index over a given period of time. It is calculated by finding the standard deviation of the logarithmic returns of the asset's price. A higher volatility means the asset's price has fluctuated more wildly.
How is volatility calculated?
This calculator first calculates the daily logarithmic returns from the series of prices you provide. It then finds the standard deviation of these returns to get the daily volatility. Finally, it annualizes this figure by multiplying it by the square root of the number of trading days in a year (typically 252).
Why is volatility important for traders?
Volatility is a key input in options pricing models (like the Black-Scholes model) and helps traders assess risk. High volatility means higher risk and potentially higher reward, while low volatility implies lower risk. Understanding an asset's volatility can help in setting stop-losses and profit targets.
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