Exponentially Weighted Historical Volatility in Excel-Volatility Analysis in Excel

  1. The wider the swings in an investment’s price, the harder emotionally it is to not worry;
  2. Price volatility of a trading instrument can define position sizing in a portfolio;
  3. When certain cash flows from selling a security are needed at a specific future date, higher volatility means a greater chance of a shortfall;
  4. Higher volatility of returns while saving for retirement results in a wider distribution of possible final portfolio values;
  5. Higher volatility of return when retired gives withdrawals a larger permanent impact on the portfolio’s value;
  6. Price volatility presents opportunities to buy assets cheaply and sell when overpriced;
  7. Portfolio volatility has a negative impact on the compound annual growth rate (CAGR) of that portfolio
  8. Volatility affects pricing of options, being a parameter of the Black–Scholes model. Read more
  1. Historical volatility is not responsive enough to the increase in volatility;
  2. When the market stabilizes, the past volatile period still stays in the sample and is assigned an equal weight as the most recent period;
  3. When the volatile period goes out of sample in the calculation of historical volatility, we suddenly experience a drop in volatility that is not caused by changing market fundamentals.

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