Annualised Volatility

In short

Standard deviation of returns scaled to a yearly period — measures price uncertainty

Volatility tells you how bumpy the ride is. If two investments both returned 10% in a year, but one went up and down wildly while the other climbed steadily, the wild one has higher volatility. It's like comparing a roller coaster to a gentle hill — both get you to the same height, but the experience is very different.

Annualised volatility is the standard deviation of returns scaled to a 1-year period (typically multiplied by √252 for daily data). It quantifies the dispersion of returns and is the most common measure of investment risk. Higher volatility means wider confidence intervals for future returns. Used in portfolio optimisation, options pricing (implied volatility), and risk-adjusted return metrics like Sharpe ratio.

Formula

Annualised Vol = Daily Std Dev × √252

Thresholds

<10%: Low volatility
10-20%: Moderate
20-35%: High
>35%: Very high

Related concepts

Sharpe Ratio — Sharpe ratio measures how much return you get for every unit of risk you take. A Sharpe of 1.0 means for every 1% of risk, you earn 1% return above the risk-free rate. Higher is better.
Maximum Drawdown — If your portfolio hit $10,000 then fell to $6,000 before recovering, the max drawdown is 40%. It measures the worst experience a real investor would have endured.
Value at Risk (VaR 95%) — VaR 95% says: 'On 95% of days, you won't lose more than X.' If your portfolio's daily VaR is $1,000, there's only a 5% chance of losing more than $1,000 in a single day.
Volatility — Volatility measures how wildly a stock's price swings. A stable utility stock might move 1% per day. A small biotech might move 10%. Higher volatility = higher risk but also higher potential reward.