What Is the Best Measure of Stock Price Volatility?
Volatility is a reflection of the degree to which price moves. A stock with a price that fluctuates wildly, hitting new highs and lows or moving erratically, is considered highly volatile.
Traders look at its historical volatility when selecting a security for investment to help determine the relative risk of a potential trade. Numerous metrics measure volatility in differing contexts and each trader has their favorites. A firm understanding of the concept of volatility and how it’s determined is essential to successful investing.
Key Takeaways
- Volatility refers to how quickly markets move and it’s a metric that’s closely watched by traders.
- Standard deviation is the most common way to measure market volatility.
- Maximum drawdown…
