Article Categories

Volatility

What is 'Volatility’ Volatility is a statistical measure used to quantify the variability of returns for a given security or market index. Volatility is usually calculated by taking the standard deviation or variance between returns from that same security or market index over a period of time. Generally speaking, higher volatility is associated with securities that are considered more risky.

In other words, volatility quantifies the amount of uncertainty (risk) associated with the size of changes in a security’s value. A higher volatility means that over a given period of time, a security’s value is likely be spread out over a larger range of values, and therefore the price of the security may change dramatically in either direction. A lower volatility means that a security’s value does not fluctuate as dramatically, so it is likely to change in value at a more steady pace over a period of time.

So, is high volatility a bad thing? Like most things in the financial world, “It depends”. If your goal is to look for slow, steady growth with a “buy-and-hold” approach then a high volatility is something you would probably want to avoid in the securities you invest in. However, higher volatility is not necessarily a bad thing. In fact, day-traders rely on it to profit from quick moves in a stock. They would look for inherently more volatile stocks to be able to capitalize on a potentially larger price move, since their investment horizon is very short-term.

How does MCI use volatility? Securities with higher volatility can be used to magnify returns substantially, when they are traded within the constraints of a carefully designed strategy. This is in fact, the approach we use here at MCI. Our strategies rely on the use of leveraged index ETFs to significantly outperform the broad market indices. Although these ETFs are more volatile than their non-leveraged counterparts, our strategies manage risk by limiting market exposure. The result is oustanding rates of return with a manageable downside risk. To see how volatility fits into our strategies, take a look at our Strategy Overview.


See Also Performance Metrics, Strategy Overview


Disclaimer: Market Chronologix, Inc. makes a good-faith effort to accurately convey the performance metrics of our strategies, but we assume no liability for incorrect information, or for any losses that may be incurred as a result of using these strategies. Past performance of our strategies does not guarantee or imply that they will continue to perform at the same level in the future. All investing involves a degree of risk. You may have a profit or a loss when you sell shares of an investment, and you should carefully consider what level of risk you can accept before investing any money. We are not registered financial advisers and do not offer investment advice, nor should any of our written materials or services be construed as such.


Copyright © 2018, Market Chronologix, Inc.

Article details:
volatility | risk | uncertainty |