Historical Volatility

Historical volatility (HV) describes the past price movement of an underlying security. Historical volatility is also known as statistical volatility because it quantifies the security’s actual volatility over a defined timeframe.

Historical volatility calculates a backward-looking moving average of a security’s realized volatility. HV is essentially a snapshot of how much volatility a security experienced in a specific period and can be used to compare two different assets.

Historical Volatility does not quantify a security’s future expected move like implied volatility, but it can be used as a basis for what might happen based on what happened in the past. Implied volatility more often than not overstates the realized volatility for a ticker symbol.

FAQs

What is historical volatility?

Historical volatility (HV) calculates a backward-looking moving average of a security’s realized volatility. HV represents the past price movement of a security. Historical volatility is also known as statistical volatility because it quantifies the actual realized volatility for a defined period.

What is the difference between HV and IV?

Historical volatility is backward-looking and describes the price movement of an underlying security in the past. Historical volatility is typically presented for a specified time frame, such as the previous 30 days.

Implied volatility is forward-looking and represents the amount of volatility expected in the future. Implied volatility describes the expected one standard deviation move for a security when calculated.

Why is historical volatility important?

Historical volatility is important because it quantifies the volatility for an assed over a defined timeframe. Traders can use the realized volatility to make assumptions about future price movement, as well as compare implied volatility to historical volatility to measure the security's actual move compared to what was implied by the market.