3.10What is volatility?
1What is it?
Volatility measures how much and how fast a price moves up and down.
2Why does it exist?
High volatility means bigger swings, so more chance of big gains and big losses. It is the most common measure of risk.
3Stock market example
India VIX is the market’s "fear index". It estimates how volatile the Nifty is expected to be over the next 30 days. A VIX of 12 is calm; 25+ is fearful.
4Diagram
5Quick revision
- Volatility = size of price swings.
- Higher volatility = higher risk.
- India VIX measures expected Nifty volatility.
6Knowledge check
Q1. Is a stock that moves ±8% daily high or low volatility?Show answer
High.
Q2. What does India VIX measure?Show answer
Expected volatility of the Nifty over the next 30 days.
Q3. Does high volatility only mean big losses?Show answer
No, big swings both ways.