I’ve always been fascinated by the concept of “volatility.”
When I say “always,” I don’t really mean “always,” but for at least the past decade or maybe a bit more.
Volatility is one of these things that is really hard to comprehend, even though it really shouldn’t be, even as it is applied to stocks and stock markets.
Volatility is nothing more than what is defined by an equation.
Even if that equation may be a complicated one, there is something that should be comforting about the certainty of it and its calculation. There is no art to it.
It is all about science.
Subjectivity versus objectivity.
Emotion versus cold, hard facts.
Volatility is simply the result of an equation that measures “variance,” which as everyone who has taken an elementary course in statistics or bio-statistics knows as being itself related to the more commonly recognized expression: Standard Deviation.
Who am I kidding? No one recognizes that expression, or if they do, it’s been misinterpreted when I’ve used it sitting at an out of town bar, trying to strike up casual conversation with someone far younger and far more attractive than me.
Anyway, there is lots of confusion over what volatility represents and I’m confused by it, as well, even as I think that I understand it.
The confusion really enters once a marketplace for volatility had come into being.
The equation, which should be primary, is now more of a junior consultant.