Historical Statistical Volatility - Calculate and Apply

Historical Volatility (Statistical Volatility) is the annualized standard deviation of past stock price movements. It measures the daily price changes in the stock over the past year. The best part of this indicator is that it can be used to predict the probability of a stock reaching a particular target price and thus can help you in building a position in stock or an option contract. 

However it must be noted that while historical volatility can be indicative of future volatility, it can also differ greatly from future volatility, depending on what was driving the price changes during the past period. Major expected news items are more important drivers of big moves in the stock price in the near future.

Morningstar publishes historical volatility data for individual stocks and indices. For example if you need to check what is the statistical volatility of IBM, key-in the ticker and look for the highlighted area below. It shows volatility data for 1 month to 3 years. 

Now with this you can use the 1 year volatility data to calculate the probability of a stock reaching a particular price using the following calculator: Stock Price Probability Calculator


Vaibhav Patni said...

Kindly explain, how to calculate VOLATILY in detail.
Thanks in advance.

Amit Agarwal said...

One can get annualised volatility data for NSE stocks active in derivative segment using following steps:

1) Select equity derivative at nse website. Type in your stock for example TCS. select and get quote.

2) Expand other information at the bottom of the page which has followoing information:

Settlement Price
Daily Volatility
Annualised Volatility
Client Wise Position Limits
Market Wide Position Limits

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