Calculating or Measuring the Stocks Volatility
To calculate or measure the stock’s volatility, follow the step-by-step guidelines mentioned in this section of the article. To ease the calculations, you will require a simple calculator.
Step Number One: Calculating the Average
Calculate the simple average of the closing price or mean of the closing price using the calculator. The simple average or mean for 20 days is calculated by adding all the 20 closing prices and then dividing the sum by 20. The value obtained by performing this calculation is known as the variance of the stock.
Step Number Two: Evaluating the Deviation
After calculating the variance, subtract the average closing price from the actual closing price for each period. This method will help us to calculate the accurate deviation for each period.
Step Number Three: Square the Deviation
Next you need to square the deviation of each period.
Step Number Four: Finding the Sum of the Deviation
Add the squared deviations obtained from step three to obtain the sum of the squared deviations.
Step Number Five: Calculating the Standard Deviation
In this step you need to divide the sum of the squared deviations by the number of periods to obtain the standard deviation value. Usually the standard deviation value will be equal to the square root of that number.
The above steps will help you measure a stock's volatility and it helps the business to be in a secure and good position. Even though this has discouraged many investors, it is essential for all investors to understand a stock’s volatility to get through the ups and downs in the market on a long term basis. Stock volatility can be accurately represented in a line chart.