What Is Volatility?

In quantitative finance, volatility refers to the degree of variation or fluctuation in the price of a financial asset over a certain period of time. It is often measured by statistical metrics like standard deviation or historical price changes. Higher volatility indicates a greater potential for rapid price changes, while lower volatility suggests more stable pricing.

Example: If a cryptocurrency experiences rapid price swings within short periods, it is said to have high volatility.

Volatility is a crucial concept in financial markets, often used by traders and investors to assess the risk and potential returns of an asset. High volatility can offer opportunities for greater returns but also poses higher risks.

Each of these terms offers a different lens through which to analyze market conditions and can be used in combination to make more informed trading or investing decisions.

When benchmarking different portfolios for Risk-adjusted return, volatility is the fundamental metric for various risk vs. rewards calculations.

Delta neutral trading strategy is a strategy that is immune to volatility: no matter which direction the price moves, the strategy makes profit.

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