Historical Volatility (Statistical Volatility)

Also referred to as statistical volatility and HV, historical volatility is a measure of a security's past price movement. It does not provide the investor with an account of the price direction, only a statistical result that reveals the magnitude of its change. It's viewed by analysts as an account of a stock's historical trading range.

Historical volatility is a mathematical concept and it's often depicted using the Greek letter sigma σ since it's a measure of the data's standard deviation, which is the quantification of the variation in a set of data. Historical volatility is an especially important concept to individuals that invest in options. While HV provides insights into a security's prior price swings, a stock's statistical trading range in the past is no guarantee of future results.

Historical volatility is a function of factors such as market demand. As market demand for a security increases, the price of the security will increase as will its volatility. As market demand for a security decreases, the price of the security will decrease and its volatility will also increase. Relatively high historical volatility values indicate a relatively wide range of historical prices, while relatively low historical volatility values indicate a relatively tight range of historical prices.

Historical volatility provides investors with insights into the past price movement of a security. This contrasts with implied volatility, which provides investors with insights into the current market sentiment towards a security.