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Volatility

vol-uh-TIL-uh-tee /ˌvɒləˈtɪləti/

nounC1GREGMATSAT

formalbusinessscientific

The tendency to change rapidly and unpredictably, especially for the worse; the liability to change rapidly and unpredictably.

Specifically refers to the degree of variation of a trading price series over time, often measured by the standard deviation of returns. High volatility means prices can change dramatically in either direction.

The story behind the word. Derived directly from 'volatile,' 'volatility' shares the same Latin root volare, meaning 'to fly.' It entered English in the 17th century, initially referring to the quality of being easily evaporated. Its application to financial markets, describing the rapid and unpredictable movements of prices, became prominent in the 20th century as financial analysis became more sophisticated.

Word relationships

Instability: General term for lack of stability; 'volatility' specifically implies rapid, often dramatic fluctuations.
Fluctuation: Irregular rising and falling in number or amount; 'volatility' implies a greater degree of unpredictability and speed.
Turbulence: A state of disorder or unrest; 'volatility' is more specific to rapid changes in value or state.

Stability: The state of being stable and unchanging.
Steadiness: The quality of being regular, even, and continuous.
Predictability: The quality of being able to be foreseen or foretold.

Commonly confused with

Risk: 'Volatility' is a measure of how much an asset's price fluctuates. 'Risk' is the broader concept of potential loss. High volatility often contributes to higher risk, but they are not interchangeable.

Word family

Volatile (adjective): Tending to change rapidly and unpredictably.
Volatilize (verb): To make or become volatile; to evaporate.

Collocations

market volatility
price volatility
high volatility
low volatility
reduce volatility
measure volatility

Example sentences

"Investors often seek to reduce portfolio volatility by diversifying their assets across different sectors." Financial markets
"The recent geopolitical events have led to increased volatility in oil prices, impacting global economies." Economic analysis
"High volatility can present opportunities for short-term traders but poses significant risk for long-term investors." Investment strategy

Memory hook

Think of a 'VOLLEY' of shots in tennis – fast, unpredictable, and constantly changing direction, just like market volatility. VOLLEY of market changes.

When not to use

Do not use 'volatility' to describe stability or predictability. It is a measure of change and unpredictability.

Fun facts

The VIX (Volatility Index), often called the 'fear index,' measures the market's expectation of future volatility.