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Stock Strategist

10 Stocks with Valuable Volatility

Volatility does not always equal risk.

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What makes an asset risky?

The standard answer is how much the asset bounces around in price--its volatility. And the most common way of measuring that is standard deviation. If an asset has returned 12% on an annual basis and has a standard deviation of 20%, then two thirds of the time its returns have been within one standard deviation on either side of 12%--specifically, between 32% and negative 8%. (For a quick refresher on standard deviation, click here.) The higher the standard deviation, the wilder historical returns have been.

Haywood Kelly, CFA has a position in the following securities mentioned above: KMX. Find out about Morningstar’s editorial policies.