Historical volatility: measure the past price change speed of the underlying tool through a formula for calculating the standard deviation;
Implied volatility: only related to options, it is the prediction of the statistical volatility of the subject matter in the option life cycle by the option market.
Investors can calculate and compare the two kinds of volatility, and then analyze and predict the future price trend, but the professional requirements are relatively high.
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Volatility represents the range of stock price changes. The greater the fluctuation of stock price, the more violent the price trend, and the greater its volatility, and vice versa.
Volatility can be used to measure the risk of stocks.
A stock with high volatility has high uncertainty about its price trend. After buying this stock, you may face a big rise or a big drop. For example, many small-cap stocks and junk stocks are often highly volatile.
However, stock prices with small fluctuations are very stable. After buying, you will only face a small rise and fall, and the profit and loss will not be great, such as large-cap blue-chip stocks.
The fluctuation of stock is definitely not a good thing for ordinary investors. Don't imagine that there are many opportunities just because of fluctuations. 99% people will never have this ability. The "Fast Bull and Fast Bear" market from 20 14 to 20 15 is a good example. Although the index still has a certain increase after a round of bulls and bears, most people are losing money.
For ordinary investors, the best trend is to slow down the cattle, step by step, rising a little every day and occasionally falling a little. You can make money by buying at any time, and you have a good attitude.
If we put aside the expected rate of return, we hope that the volatility of stocks is as small as possible, because volatility represents risk. With the same expected return, the smaller the risk, the better.
According to this logic, the smaller the fluctuation of a stock, the more valuable it is, so the position of the stock can be appropriately higher at this time.
As for how high it is, it can be determined by the idea of risk exposure parity.
Stock market value = total assets × stock position
Risk exposure = stock market value × volatility = total assets × stock position × volatility
Volatility measures the proportion of stock price fluctuation, while risk exposure measures the amount of stock assets fluctuation.
The so-called risk exposure parity idea is to ensure the consistency of risk exposure of stock assets by adjusting the size of stock positions.