High-volatility Markets

Learn what drives high volatility and how investors should respond when the market gets turbulent.

Originally used by chemists to describe chemicals that evaporate (and explode) easily, “volatile” has become the generic term for anything erratic or subject to sudden changes. Today, most people hear about volatility in connection with investments and the stock market. But what does volatility mean in a market? Can we measure it? What does it mean for an investor’s current assets?

A Measure of Movement

Just like in chemistry, market volatility is about change. Stocks (or other investments) that are thought to have more predictable price fluctuations have “low volatility” while those expected to make drastic movements (both up and down) are said to have “high volatility.” Most people use volatility to gauge the risk they are taking when purchasing an investment or planning a portfolio.

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