Volatility

The upward and downward movement of a security over a period is called volatility. Volatility measures the risk of the security. In general, higher the volatility, riskier the security. If the price of a security fluctuates slowly over a longer span of time, it is considered to be less volatile. Conversely, If the price of a security fluctuates rapidly over a small span of time, it is considered to be more volatile. Volatility is measured by calculating the standard deviation of the annualised returns over a period of time.

For instance, if you want to calculate the standard deviation of a particular stock using daily data for volatility trading, the formula would be:
 


Further, to get the annualised volatility you can simply multiply this by the square root of the total number of trading days in a year, i.e., 252.