Volatility / VIX
How much a price swings up and down — larger means more uncertainty and fear. The whole-market volatility gauge is the VIX (the "fear index").
In plain terms
Volatility is how severely a price swings up and down. Between a stock that moves 1% a day and one that moves 10% a day, the latter is more volatile.
The leading gauge of whole-market volatility is the VIX. The more anxious investors are, the higher the VIX spikes, so it is also called the "fear index." It is low when the market is calm and spikes in a crash.
What it tells you
Volatility is a yardstick for gauging "the size of risk." For the same expected return, higher volatility means more to fret over and a bigger chance of short-term loss.
A spiking VIX signals fear has spread through the market, often appearing alongside a crash. Conversely, too low is sometimes read as the market being complacent.
Formula
volatility = measured by how much returns scatter around the average (standard deviation) VIX = the expected 30-day volatility implied by S&P 500 options (the "fear index")
What high or low means
High volatility is not unconditionally bad. It is a phase where risk and opportunity grow together. But it is far from comfortable investing.
A high-volatility stock (high beta) tends to rise more when the market rises and fall more when it falls, a clue to whether it suits your temperament.
Volatility is not "direction" but "the size of the swing." High volatility does not mean a fall. It means it can move greatly up or down.
Trying to call market bottoms and tops with a volatility gauge like the VIX often misses. It is good as a reference for reading the mood, but hard to view as a tool for deciding trade timing.
Volatility and the VIX are market data. This term is background for understanding market news. (※ Our screen centers on individual companies' SEC-filed financials, and gauges an individual stock's price swing with beta.)
When the market is calm, the VIX (fear index) usually sits around 10–20. But in March 2020, as the market crashed on the COVID pandemic, the VIX topped 82, an all-time high — fear matching the 2008 financial crisis.
The market fell over 30% within a month and then rebounded fast. It showed that volatility is "the size of the swing," not "direction," and that the moment fear peaks is not always the bottom or the top. So trying to call trade timing with the VIX alone is risky.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Volatility and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.