Volatility

Economics

Volatility is the degree of variation in a financial asset's price over time, typically measured as the standard deviation of returns. The VIX (Volatility Index) measures expected 30-day volatility of S&P 500 based on options prices — the 'fear gauge.' Typical VIX: 12-20 (calm), 20-30 (elevated), 30+ (stressed), 40+ (panic). Volatility spikes during uncertainty (recessions, crises, elections). Higher volatility = higher option premiums and harder downside risk management. Long-term investors should largely ignore short-term volatility; traders focus on it heavily. Asset allocation discipline reduces portfolio volatility — bonds typically offset stock volatility, though correlations spike during crises.