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Volatility
Volatility describes the degree to which a security's or market index's price moves up and down over time.
Plain-English definition: Volatility describes the degree to which a security's or market index's price moves up and down over time.[1]
How the term is used
Volatility describes the size and frequency of price swings, not their direction. Greater swings mean greater volatility, while a calmer price path has lower observed volatility.[1]
What to check before relying on it
The estimate changes with sampling frequency, lookback window, annualization method, currency, and treatment of missing dates. Low observed volatility does not eliminate credit or liquidity risk.
Example
Two investments can earn the same annual return while one takes a much wider path of gains and losses; volatility describes part of that difference.
Sources
- FINRA: Volatility — volatility as the degree of market price movement and its relationship to risk. Accessed October 24, 2026.