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What is Volatility in Stock Market?

There are two ways in which one can learn about what is volatility in the stock market. Let’s take a look at the confusing one first and try to understand what volatility is in technical terms.

Volatility in the stock market is all about the standard deviation of the stock market returns from the mean.

The standard deviation of a stock’s annualized returns over a given period shows the range which further tells if the company’s stock price may increase or decrease.

Now let’s simplify the above statement in layman’s terms.

For example, if the share price of Infosys goes rapidly up or comes down quickly in a short time-range, it is said to have high volatility.

Vice versa, if the share price of TCS moves up or comes down slowly and stays stable, it is said to have low volatility.

High volatility should not be a worry if you are a long-term investor.

Volatility in the stock market is an important indicator and it helps estimate the fluctuations that may happen in a short period of time.

While volatility may seem like a bad thing to you, it often provides profitable opportunities. If an investor believes the market volatility is low, it will help him buy additional stocks of fundamentally strong companies for the long run.

If the volatility is high, an investor can simply exit his/her positions for the short term and wait for a better entry price.

We all know that timing the stock markets is no easy task, and it is impossible to say for sure where the markets may head next.

This is when volatility comes handy and traders with the help of decoding volatility in the stock market, prepare strategies, which may or may not work.

In India, the India VIX is a volatility index based on the NSE Nifty index. Here, a volatility figure (%) is calculated which indicates the expected market volatility over the next 30 days.


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