Published by: Direxionfunds
Date: 13 Nov 2007
“Assessing risk is an important part of investing. One commonly
used measure of risk is volatility, which measures
the variability of a security’s return through time. If
Security A and Security B have the same expected return
but Security B has greater variability of return, Security B
is more volatile than Security A. Given an equal return
most investor’s would prefer a security with less volatility,
which means that investors expect a higher return on an
investment when it carries a higher level of volatility.
This paper takes a close look at the basics of volatility, discusses
why it matters in relation to portfolio management,
and suggests some methods for managing and controlling
the impact of volatility. In highly volatile markets,
heightened emotions can lead to clouded judgment.
Controlling the amount of volatility within your portfolio
can allow for more prudent decisions.”
Full article (PDF): Link