Volatility is a measure of the variation of the price of a financial instrument or asset over time. It is calculated as a standard deviation from what is supposedly the expected price of the financial instrument by paying attention to the trends in the volatility index.
Understanding the Term
Assuming the expected value price of a stock on the market goes through remarkable changes in a short time, we refer to this asset as one that is of high volatility. Vice versa, low volatility will imply a stable position in stock price over time.
The rate of change in volatility is of major concern that helps you realize whether or not a stock fits your investment portfolio. It helps you decide whether to take the chance of generating high profits against an extremely volatile stock or to make a more stable and safe investment in stock value with low volatility.