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Volatility Quotient

Abbreviation
VQ
Parent term
Technical Indicator
The Volatility Quotient tells you the risk measurement of a security. VQ indicates how volatile an investment is based on at least one year’s historic price action. VQ tells you when to buy, how much to buy, when to sell, and how much movement you should expect from each asset. It measures historical and recent volatility – or risk – in stocks, funds, or cryptocurrencies. The lower the VQ, the more stable the movement of that stock. Higher percentages indicate the stock is more volatile in its market moves over time. TradeSmith developed the Volatility Quotient to measure an individual stock's volatility.

ABOUT VOLATILITY QUOTIENT

  • VQ is a rate at which the price of a security increases or decreases for a given set of returns. It is a measure of historical volatility over 12-18 months.

  • Used in option pricing formula to gauge the fluctuation, the VQ% is measured by calculating the standard deviation of the annualized returns over a given period of time. 

  • The VQ numbers show you that different stocks have different volatility patterns. The higher the number, the more volatile the stock.

  • VQ is developed by TradeSmith and Dr. Richard Smith.


HOW VQ WORKS

The VQ is calculated based on the historical price movements of a particular asset over a specified period. It measures the average range of price fluctuations experienced by the asset during that time.

VQ is often normalized to provide a percentage value, making it easier to compare the volatility of different assets or investments.

  • Risk Assessment. 

By assessing the historical volatility of an asset using the VQ, investors can gain insights into its risk profile. Assets with higher VQ values tend to experience greater price swings and are considered riskier, while assets with lower VQ values are typically less volatile and perceived as safer.

VQ can also be used in portfolio management to determine appropriate position sizing and risk management strategies. 

Warnings and Disclaimers

The information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. It is not designed to meet your personal financial situation - we are not investment advisors nor do we give personalized investment advice. The opinions expressed herein are those of the publisher and are subject to change without notice. It may become outdated an there is no obligation to update any such information.

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