What is the Meaning of Market Volatility and What is the VIX Tracker
- Updated Wednesday Jun 05 2024
What is the Meaning of Market Volatility and What is the VIX Tracker
Volatility in the stock market refers to the degree of variation in the price of a financial instrument over time. It is commonly measured by the standard deviation or variance of returns. High volatility means the price of the stock can change dramatically in a short period, either increasing or decreasing significantly. Low volatility indicates more stable price changes.
Volatility is an important concept for investors as it affects risk and potential returns; higher volatility often means higher risk but also the possibility of higher returns. It is often tracked using the Volatility Index or VIX which is just measure of the expected volatility over the defined time period, by measuring the option prices of a particular group of stocks.
When the VIX is high, it indicates that investors expect significant price swings in the market, suggesting higher uncertainty or fear. Conversely, a low VIX implies more stable market conditions. It is widely used by investors to gauge market sentiment and potential risk.
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