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Volatility

Volatility is one of the standard statistical ways to measure risk. Say you want to know a risk metric for shares of Infosys. One way to do this is to measure the volatility of its daily returns. For this, you tabulate its daily closing share prices for a long enough time horizon (say three years). Then you calculate daily return:

Then you can use a simple Excel spreadsheet formula to calculate standard deviation: Stdev. You need to select the entire column of daily returns as arguments to this formula, and express the result as a percentage.

Volatility is simply the square of the standard deviation.

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