What is variability?
Volatility is the rate at which the price of a security moves. A high volatility security has larger price fluctuations than a low volatility security. The faster the price changes up and down, the more volatile it is. As such, instability is often used as a risk measure.
In general, a stock is said to be more volatile if there is a greater difference in price change than a stock whose price change is not as large.
Volatility can be deduced by considering changes in the share price over the last 30 days and calculating the standard deviation of the percentage changes in the share price.
Volatility Index (VIX)
The volatility index is an index that measures the expected fluctuations in the share price. The index known as the VIX or the fear index as a high VIX determines greater market volatility and thus more volatility in stock prices.
In the United States, before the financial crisis, the highest point that VIX touched was 38 in August 2008. At the end of October of the same year, the value of VIX jumped over the roof and touched a staggering 89.53, emerging alarming financial collapse.
India launched its own NSE VIX in 2008 based on Nifty 50 Option reference prices. It sets fluctuations in Nifty 50 stock prices for the next 30 days. “India VIX is a simple but useful tool for determining overall market volatility. The index reflects the default volatility embedded in option prices. Not only is the volatility index used as an indicator of implied market volatility, various marketable products such as futures and options contracts are available in the international volatility index, ”said the NSE website.
The peak ever recorded on the NIFTY VIX was 85 in April 2008, and the lowest ever recorded was 16.7 in March 2010. The lowest record ever recorded on the NSE VIX was the low volatility of a market where investors can accept low fluctuations.