What it measures
Standard deviation measures how far returns typically land from their average. In investing, the annualised standard deviation of returns is called volatility. Higher volatility means a bumpier ride.
How it is calculated
- Take daily returns.
- Find their average.
- Average the squared differences from that average, then take the square root.
- Annualise: multiply by the square root of 252 (trading days a year), about 15.9.
A daily standard deviation of 1% is about 16% a year.
Rough meaning
If returns were bell-shaped, about two years in three would land within one standard deviation of the average. With a 10% average and 16% volatility, that is roughly -6% to +26%. Real returns have fatter tails; see Kurtosis and fat tails.
Typical volatility
| Asset | Annual volatility |
|---|---|
| Short-term Treasuries | Under 2% |
| Broad bond fund | About 5% |
| S&P 500 | About 15 to 20% |
| Single large stock | About 25 to 40% |
| 3x leveraged ETF | About 45 to 60% |
The The VIX (volatility index) is the market's forecast of S&P 500 volatility for the next 30 days.
See also
- Sharpe ratio What the Sharpe ratio measures, how to calculate it from returns and volatility, what counts as a good Sharpe ratio, and where it misleads.
- Sortino ratio How the Sortino ratio improves on the Sharpe ratio by counting only downside volatility, how to calculate it, and when to prefer it.
- The VIX (volatility index) What the VIX fear index measures, how it is calculated from S&P 500 options, what VIX levels mean, its history of spikes, and why it tends to mean-revert.
- Volatility decay What volatility decay (beta slippage) is, why leveraged ETFs lose value in choppy markets, a worked example, and the formula that estimates the drag.
Pages that link here: Kurtosis and fat tails
Last updated September 30, 2026. Education only, not investment advice.