Investment Jargon: Volatility​

Volatility​

This is the most commonly used risk measure for investments and is the typical annual percentage price move. For stocks of large companies in developed markets volatility is usually around 20% which means that in a typical year investors should expect moves, up or down, of 20%. Bonds are usually much less volatile than stocks but this depends on the maturity of the bond: bonds that have the shortest lifetime carry least risk. Volatility is given as a percentage and is annualized. To convert daily volatility to annual volatility you multiply by sixteen (which is the square root of 252 which is the number of trading days in a year). Volatility is insensitive to the sign of price movements, so large positive returns or large negative returns increase volatility. Alternative risk measures might be Value at Risk or, see our article on the best way to measure risk.