Volatility
Published:Wednesday | March 23, 2011 | 12:00 AM
Volatility is a measure of how stable the returns from a stock are, and is one of the most important financial metrics.
Volatility is often measured as the standard deviation of the returns on the stock and is usually taken as a measure of the riskiness of the stock. The larger the standard deviation, the higher the volatility and the riskier the stock.
High volatility stocks can be thought of as offering the investor the possibility for very high returns as well as large losses.
Using a cricketing analogy, high volatility stocks could be your Chris Gayles or Keiron Pollards, while a Shiv Chanderpaul would be a low volatility stock. They all have their place in a team, and so do various stocks in your portfolio.
It is common in Cari-com for the historical returns or expected returns on an investment to be quoted, but no mention made of the volatility or risk. As an investor, you typically are, or should be, interested in the risk profile of the investment as well as the returns.
As such, you should seek information on volatility as well as historical or expected returns.