How to Calculate Different “Volatility” Measures

How to Calculate Different "Volatility" Measures by Wesley R. Gray, Ph.D., Alpha Architect

Wild-swinging oil prices have caused some chaos, or "volatility," in the financial markets recently. We've also heard a lot in the financial media regarding the strong performance of "low volatility" funds.

But what exactly is “volatility” and how do we measure it?

We've posted some thoughts on the low volatility anomaly (e.g. Avoid High Beta Stocks. Period.)

But the use of volatility is somewhat ambiguous.

In the studies we conducted we referenced  "beta" and Idiosyncratic volatility ("ivol").

We thought it might make sense to take a quick break and describe how these concepts are calculated. We first describe 3 ways in which we can describe "volatility" and then we provide a...