Often volatility and risk are considered to be synonymous. However, that’s not the case. Risk is the probability of your portfolio losing value. That could happen due to a variety of reasons both fundamental to the securities you own in the portfolio or due to technical market linked reasons. Volatility, on the other hand, measures the change in price of a security over a specified period of time. Volatility, hence, is a measure of risk and not the risk itself. There are many ways to gauge the volatility of a portfolio. Here’s a look at some of the common methods, such as standard deviation, portfolio beta and R squared.
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