Volatility refers to sudden variations in the price of a lot. This movement could be either refer to a rise, or a fall, or general instability in the market. In this article, we hope to clear up the various aspects of volatility that you may come across.
Stock Volatility
Stocks may be the most volatile asset in trading. Due to their volatility, however, they may in fact be the most profitable if the investor is lucky. Companies issuing the stocks want to convince the investors that they are a worthwhile asset to invest in. The stock prices either grow very high, or the company pays big in dividends.
Investors use the beta to measure how volatile stock may be. If the price of a stock moves in accordance with the index, as expected, the beta will remain 1.00. The higher the value, the more volatility. The lower the index, the lower the volatility.
Price Volatility
Prices vary largely due to trends in demand and supply. There are three main aspects which you must consider here.
How can the season affect the stock? Christmas, New Year, times like these can dramatically affect the price of a stock.
The weather can have a significant effect on the price of a lot. The long-term effects of the weather can contribute to changes in agricultural conditions, meaning certain crops may flourish, and others may suffer.
The reactions of traders can have a significant effect on the state of the price and can amplify the volatility of the market as it is.
Historical Volatility
The history of the volatility of a stock is followed closely, usually over the last 12 months. The greater it is in this period, the more volatile investors consider it, making it riskier. The history of these stocks means that you would do your best to keep hold of them for a long period before you sell them.
Implied Volatility
It refers to the future prediction traders make about the price of a stock. Generally speaking, the rise of options or futures prices indicate a rise in implied volatility.
Market Volatility
It represents the speed with which prices vary in a market. This refers to several different markets, including forex, the stock market, and commodities. The higher this value is, the more likely that a market has reached a peak or trough, which is caused by a high amount of uncertainty.
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