What Is Stock Volatility ?
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Stock volatility can be defined as the probability of given stock to undergo considerable increase or decrease in its value within the stipulated period of time. |
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It is usually calculated by the investors before arriving at any decision with regard to purchase of new stocks, selling of stocks in possession, or purchase of extra shares of existing stocks. The concept of stock volatility is vital as it helps the investor to make investments in a way that it yields maximum returns and incurs minimum losses.
Numerous factors tend to affect stock volatilities to a great extent. One such factor is stability of assets that are supporting the given stock issue. Any decrease in public confidence in stocks of a particular company will immediately result in a drop in the stock issue. Also, if there is a sharp fall in the unit price of stock due to enduring factors, volatility of such a stock should be considered unacceptable by investors. Circumstances that affect stock market also tend to affect volatility. Loss of consumer confidence in political or economic issues is one such factor that leads to severe market volatility, affecting individual stocks by minimizing the trading activity. In such a scenario, stock options bought and sold in market tend to experience sudden and drastic fluctuations in value.
For an investing activity to be profitable, brokers and investors must be very well informed about the degree of volatility linked to the preferred stock. They should also be in a position to assess the current and past data of the stock so as to analyze the factors and risks involved. If stock volatility falls within an acceptable range, an informed decision for investment in this particular stock may be taken by the investor.
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