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Volatility

vol-uh-TIL-uh-tee /ˌvɒləˈtɪləti/

nounC1GREGMAT

FormalBusinessTechnical

The degree of variation of a trading price series over time; a measure of how much and how quickly an asset's price moves.

High volatility implies greater risk and potential for both large gains and losses, while low volatility suggests more stable price movements.

The story behind the word. The word 'volatility' comes from the Latin 'volare', meaning 'to fly'. This root gives us words like 'volatile' (something that evaporates quickly or changes rapidly) and 'volant' (flying). In finance, 'volatility' captures the idea of prices 'flying' up and down, rapidly changing and being unpredictable, much like something that evaporates quickly into the air.

Word relationships

Instability: More general term for lack of stability; 'volatility' is specific to price movements.
Fluctuation: Refers to ups and downs; 'volatility' quantifies the magnitude and speed of these fluctuations.

Stability: The state of being steady and unchanging.
Calmness: A state of little movement or disturbance.

Commonly confused with

Risk: 'Volatility' is a measure of price movement, which contributes to investment 'risk', but risk encompasses more than just price swings.

Word family

Volatile (adjective): Liable to change rapidly and unpredictably, especially for the worse.
Volatilize (verb): To make or become volatile.

Collocations

market volatility
price volatility
high volatility
low volatility
implied volatility

Example sentences

"Investors are often wary of high volatility in the stock market, especially during economic uncertainty." Market analysis
"Cryptocurrencies are known for their extreme volatility, which attracts some traders but deters others." Investment choices
"Portfolio managers use various strategies to mitigate the impact of market volatility on their holdings." Risk management

Memory hook

Think of 'volatility' as prices 'flying' up and down, making the market 'unstable'. Flying prices

When not to use

Do not confuse 'volatility' with 'risk' generally, as volatility is a specific measure of price fluctuation, though it is a key component of investment risk.

Fun facts

The VIX (Volatility Index), often called the 'fear index', is a popular measure of the stock market's expectation of volatility based on S&P 500 index options.