Volatility: What’s The Best Measure? by Mike B. Siroky, MD
Volatility has often been measured by standard deviation but there are other ways to look at volatility. Here we look at how true range can be used as a reliable volatility measure.
A century ago, John D. Rockefeller was asked what he expected Standard Oil stock to do. According to legend, he answered, “I fully expect it to fluctuate.” Today we use the term “volatility” instead of “stock price fluctuation.” Standard deviation of returns remains the most commonly used volatility estimate, but newer measures have appeared in the last two decades that are thought to offer some significant advantages. The main problem has been that different measures produce different estimates of volatility. It turns out that the level of volatility depends on your measuring stick ...