# How to Calculate Stock Price Volatility

Analyzing stock volatility can help with investment decisions.
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Stock prices rise and fall. Volatility is a measure of the speed and extent of stock prices changes. Traders use volatility for a number of purposes, such as figuring out the price to pay for an option contract on a stock. To calculate volatility, you'll need to figure a stock's standard deviation, which is a measure of how widely stock prices are spread around their average value. You can make your calculations on a spreadsheet or with a calculator.

## Step 1

Gather stock price information. You will need at least a month of daily stock price data. However, you will get the best results by using at least six months of data. If you don't know how to do this, go to Yahoo! Finance, input the stock's ticker symbol into "Get Quotes," and click on "Historical Prices." Copy and paste this information directly into a spreadsheet. Label Column A to represent historical stock price trading dates and Column B to show daily closing stock prices.

## Step 2

Find the average price over the length of time you chose. For example, if you pulled out six months of information, take the average price over 183 days. This can be set up as the AVERAGE function or by taking the sum of all daily prices (Column B) and dividing by 183.

## Step 3

Calculate the difference between the daily price (Column B) and the average over the range of data. If you're using a spreadsheet, create a Column C, which will refer to this difference, by subtracting Column B from the average. Copy and paste this function down the length of the data on your spreadsheet.

## Step 4

Square the difference. Create a Column D into which you put the square of Column C. You do this by multiplying the Column C value by itself. Now find the sum of Column D and divide by your days range (183 days for 6 months of data). This is called the variance.

## Step 5

Take the square root of the variance, using the SQRT function. This result gives the stock's standard deviation for the entire sample of price data. In the investor world, this number represents a measure of stock-price volatility.

## Step 6

Check your results with a historical-volatility calculator. Use the same data referred to in the calculations above. See Resources for a link to an historical-volatility calculator.

### Warning

Do not confuse stock-price volatility with implied volatility. Implied volatility calculates the future volatility of a stock and involves the use of the Black Scholes option pricing model, which is complex. For a good explanation of the model, see Resources under Black Scholes Option Pricing Model.

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