What Is Stock Volatility (and What It Actually Says About an Investment)

A stock's volatility measures how much its price varies from one day to the next. Technically, it's the standard deviation of daily returns, expressed as an annualized percentage.

How it's calculated

If a stock rises 1%, falls 3%, rises 0.5%…, volatility measures the dispersion of those moves. It's annualized by multiplying by √252 (trading days in a year):

• Annualized volatility = Daily volatility × √252

20% annual volatility means the price can move ±20% around its expected average with roughly 68% probability.

High volatility isn't always bad

Volatility penalizes upside and downside moves equally. A stock that rallies hard and irregularly will show high volatility — but that doesn't hurt the investor. That's why the Sortino ratio penalizes only downside volatility.

Volatility at the portfolio level

The most interesting effect happens at the portfolio level: combining assets with low correlation reduces total volatility, even if each asset is volatile on its own. That's the essence of Markowitz's theory.

A well-diversified 10-stock portfolio can have lower volatility than any single one of its components.

Typical ranges in the S&P 500

• 10-20%: low. Utilities, consumer staples, defensive large-caps.
• 20-35%: moderate. Most S&P 500 stocks.
• > 35%: high. Growth companies, biotech, small-cap tech.

Compare the volatility of any stock on its individual page and see how it changes when combined with others in the optimizer.

Analyze your portfolio's volatility →