| NSE Volatility Index |
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| Written by Sumedh Inamdar |
| Sunday, 18 July 2010 16:12 |
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Volatility is the rate at which the price of a certain security moves. A security with high volatility has bigger fluctuations in price compared to a security with low volatility. The more quickly a price changes up and down, the more volatile it is. As such, volatility is often used as a measure of risk. Basically, a stock is said to be more volatile if it has a larger difference in the change in prices as compared to a stock whose change in prices is not that large.
Volatility is the rate at which the price of a certain security moves. A security with high volatility has bigger fluctuations in price compared to a security with low volatility. The more quickly a price changes up and down, the more volatile it is. As such, volatility is often used as a measure of risk. Basically, a stock is said to be more volatile if it has a larger difference in the change in prices as compared to a stock whose change in prices is not that large. In other words, if the change in price of a security is higher, it is said to be more volatile as opposed to a security whose price change is lower. By observing the security for the past 30 days and calculating the standard deviation of the change in price of a security in percentages, volatility can be obtained. Volatility Index (VIX) The VIX is a tool used to measure the movement in the price of a share. The Volatility Index has certain technical and informal names such as the VIX and the 'fear index'. It is called the fear index as a market with a high reading on the VIX has more fluctuations and is thus feared by investors. The VIX can also be used to foresee financial disasters. In one instance in the United States, in August of 2008 the VIX touched 38, the highest point in its history but then two months later, the volatility index touched an astounding 89.53, sprouting worry of the beginning of financial recession. The VIX was launched in India the year of the financial crisis. It was launched by the National Stock Exchange. It is used to determine movement of share prices in the Nifty 50 index for the next month. "The India VIX is a simple but useful tool in determining the overall volatility of the market. The index captures the implied volatility embedded in option prices. Not only is the volatility index used as an indicator of implied volatility of the market, various tradable products, such as futures and options contracts are available on the volatility index internationally," said the NSE website. The peak ever recorded on the NIFTY VIX was 85 in April 2008 and the lowest ever recorded was 16.7 in March, 2010. The lowest ever recording on the NSE VIX denoted the low volatility on the market where investors could assume low fluctuation. BSE stock picks can be used with the Nifty VIX to help investors who are just entering the market. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Moneyvidya is an innovative approach to choosing best stock tips. You can find stock recommendations here from top analysts from India, who have proven their performance by competing with all other analysts and beating them on several parameters like profits and consistency. |