Is risk the same as volatility?

01:10 Mins Read

Risk and volatility are two terms that are often interchanged, sometimes wrongfull so. Watch this video to get more clarity on these concepts.

Transcript

Though many traders tend to use the two terms synonymously, risk and volatility are not the same. So then, what is risk? Risk is the possibility that the actual returns on an investment will be different from the expected returns. What is volatility then? Volatility measures the extent of price movement of an asset. The greater the price movement, the higher the volatility. What differentiates risk from volatility? Risk can never be in your favour because it always implies losses. But volatility can sometimes be favourable to you because it could also lead to good returns. Risk can be reduced through the use of various strategies. Volatility cannot be controlled or reduced. There are many more points of difference between risk and volatility. To know more about this, head to the next chapter in this module.

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