InvestmentFinancial Glossary
Volatility
Definition
A statistical measure of the dispersion of returns for a given security or market index, usually measured by standard deviation. High volatility means the price swings widely in both directions. Low volatility means more stable, predictable price movement. The India VIX index measures expected volatility in the Nifty 50.
Why It Matters
Volatility is the price you pay for higher returns. Small-cap stocks are more volatile (25-30% standard deviation) but deliver higher long-term returns than large-caps (15-18% standard deviation). If you cannot stomach a 40% temporary decline in your portfolio, reduce equity allocation. Your risk tolerance should determine your asset allocation.