Volatility

Volatility measures how much an asset's price fluctuates over time. It is the standard quantitative proxy for risk and the denominator in most risk-adjusted return measures.

How it's calculated

Volatility is the standard deviation of returns, usually annualized. For daily returns:

annualized_volatility = stdev(daily_returns) * sqrt(252)

252 is the number of trading days in a year. A stock with daily return standard deviation of 1.5% has annualized volatility of roughly 24%.

How to read it

• 5% – 10% — bond portfolios, defensive equity mixes
• 15% – 20% — broad equity index funds (the S&P 500 has averaged around 15 – 18% annualized volatility over long periods)
• 25% – 40% — typical for individual stocks, especially in growth sectors
• > 50% — speculative, often associated with small-cap or crypto-adjacent positions

Realized vs implied

• Realized volatility is computed from actual historical returns. It tells you what happened.
• Implied volatility is extracted from option prices. It tells you what the market expects going forward. The VIX is implied volatility on the S&P 500.

SignalFin reports realized volatility using a trailing window of daily returns.

Limitations

• Symmetric. Volatility treats a +5% day and a -5% day identically. Most investors do not feel them the same way.
• Assumes returns are normal. Real-world returns have fat tails — extreme moves happen more often than a normal distribution would predict.
• Time-varying. Volatility clusters. Calm periods and stressed periods have very different baseline volatility. Long-window averages can hide this.