Is Volatility Sigma or Sigma Squared?

Volatility (in Finance) Is Sigma, Not Sigma Squared

If you are asking this question I assume that you know that sigma denotes standard deviation, while sigma squared denotes variance in statistics. Variance is standard deviation squared. Standard deviation is the square root of variance.

Volatility, as it is commonly understood, calculated, and interpreted in finance, is the standard deviation of returns. Therefore, the answer to the question is that volatility is sigma and it is not sigma squared.

More Information

Here you can see more information about volatility, standard deviation, and variance, and their various relationships:

Historical Volatility Calculation – Here you can find how volatility is usually calculated as the standard deviation of logarithmic returns, step-by-step. The parameters of the calculation (for example the period length or annualization factor) are also explained here.

Historical Volatility Calculator + Guide – This is an Excel calculator of volatility based on historical data. The guide explains not only the various functions and settings of the calculator, but also the calculation of volatility using the two most popular methods (the standard deviation of logarithmic returns and the zero mean or non-centered method).

Is Volatility and Standard Deviation the Same? – Although volatility is usually understood as standard deviation, the two terms are of course not total equivalents. There are other alternative measures of volatility in finance. There are of course other uses of standard deviation besides volatility of investment returns.

Calculating Variance and Standard Deviation in 4 Easy Steps – This page explains the calculation of variance and standard deviation in detail, even for those who have no experience with statistics. It also explains the relationship between variance and standard deviation and the difference between calculating them for a population and for a sample.


Related pages


volatility calculation black scholescalculator for variancespx options settlementdefine bearishdistribution kurtosishow to calculate variance on a calculatorlogarithmic returnsrealized volatility calculationusing excel to calculate standard deviationberkshire hathaway holdings changesfxc etfblack scholes theoryoption theta calculatorsqrt rulesoption pricing calculator black scholescalculating stock volatilitysma and emaitm calculatorvxx ipathchange notepad background colorshort straddle option strategyformula for calculating medianinverse sp500 etfhow to trade macdrho calculationsquare root of 3.24calculating sample variancevega gammavix index chartexcel formula explanationsinventory average cost methodwhat is the formula for dividend yielddelta gamma theta vegawhat is an option straddlestrangle option strategy exampleoptions calculator excelblack scholes exampletheta call optioneuropean option calculatorstoxx 50 europekurtosis meaningcontango explainedarithmetic formulas in excelderivation of standard deviation formulabuying vix callsarbitrage trading definitionwacc computationkurtosis and skewness interpretationcanadian currency etfarithmetic average calculatorscholes mertonblack scholes implied volatility calculatordebit call spreadwhat does bearish and bullish mean in stocksmean and standard deviation calculatorstandard deviation of the sample mean formulageometric mean on excelcontinuous compounding excelmean variance and standard deviation calculatorexcel formula for squarevariance formula ungrouped datacboe volatility index vixbull put spread vs bull call spreadformula for sample variance statisticlist of etnstrading thetacalculate volatility excelexcel option pricing modelskewness statistics formulaproshares productsannualize a numberdow divisorweighted average cost inventory formulalognormal calculatordelta hedging formulasample skewnessaapl flash crash