Volatility -- Annualized Standard Deviation of Returns

Volatility is computed as the standard deviation of daily returns, then annualized by multiplying by the square root of 252 (the approximate number of trading days in a year):

Annualized Volatility = Daily Std Dev × √252

A volatility of 20% means that in a typical year, daily returns fluctuate with a standard deviation consistent with roughly ±20% annual swings around the mean return.

Reference Levels

• Below 10%: Low -- bond-like, conservative portfolio.
• 10% to 20%: Moderate -- typical diversified equity portfolio.
• 20% to 35%: High -- concentrated equity portfolio or small/mid-cap tilt.
• Above 35%: Very high -- highly concentrated or leveraged positions.

The S&P 500's long-run realized volatility is approximately 15-18% per year. In crisis periods (2008, March 2020), it has spiked above 40%.

Volatility Is Symmetric -- a Limitation

Standard deviation treats upside and downside fluctuations equally. A portfolio that occasionally surges 10% in a single day looks risky by this measure, even if those swings are consistently positive. This is why the Sortino ratio -- which uses only downside deviation -- is often preferred alongside volatility as a risk measure.