How to Calculate Historical Volatility

Calculating historical volatility.

Investments are usually measured on two things: risk and return. That is because, in general, the higher the risk, the higher the return and vice versa. One component of risk is volatility. The more volatile the price of an asset, the more riskier it is to carry as you may not get the price you need. One commonly used measure of volatility is historical volatility, which is also known as statistical volatility (SV).

Instructions

1. Obtain at least 10 days of historical pricing data for a stock.

2. Input these numbers into Excel. For instance, in A1 input the title "Historical Prices." In cells A2 through A11 list the prices by date.

3. Use the standard deviation formula in Excel to calculate the standard deviation. For instance, in cell A12 input the formula: "=STDEV(A2:A11)."

4. Multiply the standard deviation by 15.937 (the square root of 254 trading days in a year). For instance, input "=A12*15.937." The answer is the historical volatility for the list of 10 stock prices.

5. Interpret the value. This means that the stock is expected to move up by X percent or down by X percent over the next 254 trading days, where X equals historical volatility.

References

• Investopedia: Option Volatility: Historical Volatility
• Microsoft: STDEV