Historical volatility

Historical volatility is the standard deviation of past rate of returns (daily, weekly or monthly most precise is daily), taken from price history and often used as an estimate of the unobserved actual volatility.

The most commonly used measure of return volatility is standard deviation which measures the dispersion of returns. Standard deviation is one of the main characteristics of a normal distribution.

Enter your Email below to Download Free Historical Data for Nikkei 225 and Economic Data for 120,000+ Macroeconomic Indicators and Market Data covering Stocks, Bonds, Commodities, Currencies & Financial Indices of 150 countries in Excel or via Quantitative Python API.

Historical volatility Formula

Historical Volatility

Volatility Example

If stock X moves up 10% one year, and down 10% next year for the last 10 years, it has annualized volatility of 10%. Stock Y which moved 20% up and 20% down on alternating years for the last 10 years, it has volatility of 20%.

Even though both stocks end the 10 years unchanged from where they began, stock Y has twice the volatility of stock X. Stock X is considered superior investment because it has less risk in generating the same as stock Y.

Stock X volatility means that there is 95% probability (2 standard deviations) that the stock price iwll move between 10% and 30% on average annually.