Volatility is the fluctuations in the price of a stock over a period of time. It is measured by studying the average deviation over a period of time.
Volatility can be of various types as mentioned below:
- Actual Current Volatility : It is the volatility of the price of a stock for a specified period in the near past
- Actual Historical Volatility: It is the volatility over a period of time that is much before the near past
- Actual future volatility : It is the volatility in the price of a stock from a date in the present to any date in the future
- Historical implied volatility : It gives the trend of the volatility of a stock based on the historical volatilities
- Current implied volatility : It gives the current trends of volatility
- Future implied volatility : It is the expected trend of the volatility in the price of a stock in the near future.
Volatility in prices results in speculation of the prices of stocks and people utilize the volatility in prices by buying a stock when it is cheap and selling it when the price rises. Diversification of selecting the stocks for investments reduces the risks associated with volatility.
