Volatility measures how much and how quickly an asset price moves up and down, reflecting the degree of risk and uncertainty in its returns.
Volatility describes the size and frequency of price swings in an asset. High volatility means prices move sharply in both directions; low volatility means prices are relatively stable.
It is often measured statistically using standard deviation of returns over a period. Cryptocurrencies are known for high volatility, while government bonds and stablecoins sit at the low end.
Volatility is a double-edged sword. It creates opportunity for large gains but also exposes investors to steep losses, which is why it is closely tied to risk.
Understanding an asset volatility helps you size positions appropriately and match investments to your risk tolerance. Strategies like dollar-cost averaging and diversification are designed in part to manage the impact of volatility.
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