The price history of the stock contains information on how the stock price has behaved over time. It is this behavior that is used to measure risk. This seems simple enough. The concept behind this difference in stock behavior is known as Volatility . If you could place a number on the wildness of a stock s price, Volatility would be it.
Volatility is a measure of how the price of a stock fluctuates over a given period of time.
Using Volatility, it is possible to come up with exact numbers to describe the fluctuation of the price of a stock. For a detailed explanation of Volatility click here. A volatility measurement can be a very accurate description of past behavior. Understanding past behavior is very important and the need for exacting and accurate analysis of stock s history should not be underestimated. However, to an investor, a measurement of the past, no matter how accurate, is useless if it cannot be applied to the making of future investment decisions.