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Risk Metric
Volatility
Annualized Volatility (Standard Deviation)
Definition
A measure of the dispersion of returns. Higher volatility means larger price swings. It is calculated as the annualized standard deviation of monthly returns.
Formula
StdDev(Monthly Returns) × √12
Good
< 10%
Bad
> 20%
Example
A portfolio with 15% annualized volatility means that in a typical year, returns could swing roughly 15% above or below the average in one standard deviation.