How to Calculate Volatility

Learn how to calculate the historical volatility of a stock, and you can anticipate how much price change your portfolio might experience in the future.

Instructions

  • Step 1: Divide the summed squares by the total number of days in your measurement period.
  • Step 2: Calculate the square root of that number to find the historic volatility of your stock. Anticipate high volatility and large price variance if your number is high. Smaller numbers indicate less volatility and historic price change.
  • FACT: The New York Stock Exchange first opened in 1792. The Bank of New York was the first company listed on the stock exchange.
  • TIP: Know that historical volatility is a measurement of the standard deviation of the price values over a period of time. Use the standard deviation function in Excel to replace all of the calculations in this script.
  • Step 3: Add all of the squared differences together.
  • TIP: Enter the price values in Excel or another spreadsheet software program to make the calculations easier.
  • Step 4: Find the average daily closing price for your stock over the time period. Add all of the prices, then divide that number by the total number of market days in your measurement period.
  • Step 5: Subtract the average value you found from the first price in your data set, and then square the result. Complete this calculation for each of the price values you have used.
  • Step 6: Find the daily closing price for your stock in each of the last 20 days the market was open. Use more days' information for a more comprehensive calculation.

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