Volatility

Volatility is the statistical measure of how much an asset's price moves around. A stockTermStock×السهمA share of ownership in a company, bought and sold on a stock exchange, that may pay dividends and rise or fall in value.Open the term that swings between SAR 90 and SAR 110 every month is more volatile than one that stays between SAR 99 and SAR 101. Volatility is usually expressed as a percentage and calculated from historical price changes, though it can also be implied from the prices of options on that asset.

High volatility means large price swings in either direction. Low volatility means the price stays relatively stable. Volatility itself is neutral: it does not tell you whether prices are rising or falling, only how much they move.

Volatility determines how much an investment can hurt or help you in the short term, and it shapes what you can actually do with your money when you need it.

If you hold a volatile asset and need to sell it next month, you might be forced to accept a price far below what you paid. A stable asset lets you plan around its value. This matters most for money you know you will need soon: a volatile holding is a gamble on timing, not an investment.

Volatility also determines the width of possible outcomes. In a volatile market, the gap between your best case and worst case over the next year is enormous. In a stable one, outcomes cluster around the average. That width is what risk actually is: not the direction prices move, but how much they could move either way. A volatile asset can deliver outsized gains, but it can also deliver outsized losses, and you cannot choose which one arrives.

• Volatility is not risk itself, but it is the main ingredient in risk. An asset can be volatile and still be safe if you hold it long enough for the swings to average out.
• Historical volatility is backward-looking and does not predict future volatility. Markets can shift from calm to turbulent without warning.
• DiversificationTermDiversification×التنويع الاستثماريSpreading money across different investments instead of concentrating it in one, so the entire portfolio does not collapse if one investment fails.Open the term reduces volatility of a portfolio even if individual holdings remain volatile, because they do not all swing the same way at the same time.
• Volatility is highest when there is uncertainty about what something is worth. As soon as new information arrives and settles, volatility often falls.