Glossary
Volatility
How much a price moves around over a period, in either direction, measured as the size of the swings rather than the destination.
A stock that spent the year traveling between $80 and $120 was volatile; one that drifted between $98 and $102 was not. Both of those descriptions are about the ride rather than the result, and the two stocks can finish the year at exactly the same price as each other.
Volatility and loss are two different words that get used as though they were one, and separating them is the most useful thing on this page. A price that falls does nothing permanent until somebody acts on it. A sale is what converts a movement into a realized loss, which is why the same 30 percent decline is an inconvenience to one holder and a catastrophe to another. The difference is usually whether they needed that money this year.
It gets measured in several ways and none of them is a forecast. Beta compares a stock's swings against the market's; the 52-week range shows the widest points reached; implied volatility, read out of options prices, is what the options market is charging for uncertainty right now. All three describe conditions rather than predict them.
Learn this properly
Lesson 5: Risk, in the Language You Already UseWhat you can actually lose, why volatility and loss are not the same word, and diversification without the lecture.
Related terms
- BetaA measure of how much a stock has moved relative to the market, where 1.0 means it moved roughly in step.
- 52-Week RangeThe highest and the lowest price a stock has traded at over the past year, printed as a pair.
- Bear MarketA fall of 20 percent or more from a recent high, across a whole market rather than a single stock.
- LiquidityHow easily something can be turned into cash near its quoted price, without the act of transacting moving that price.
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