Partner With Us NRI

Open Free Demat Account Online with ICICIDIRECT

How Volatility in Stocks impact Your Investments


Speculation drives prices in the stock market. Investor behaviour, alongside other factors such as weather, transportation, political climate, incentives or restrictions imposed on trading, etc., combine to form market conditions. Market conditions are one of the primary determiners of profit or loss in stock market trade. The Dutch East Indies Company (VOC) was able to pay dividends to its shareholders because market conditions remained favourable for the company. The great banking collapse of London in the 1790s happened due to excessive speculation and shorting, influencing market conditions negatively. Similarly, the Great Depression of the 1920s occurred because investors were unable or unwilling to consider the prevailing conditions.

What is Stock Volatility?

  • Stock volatility is defined as the range of dispersion for the mean or average returns on a stock or security.

  • Stock volatility is generally calculated via the standard deviation method. That shows how the stock's price is clustered around its moving average. If the price is clustered very closely, then the volatility is said to be low, and if the price is clustered loosely, then the volatility is said to be high.

  • Several factors influence volatility. International, regional and national economic policies, such as interest rates, tax rates, restrictions on trade or incentives, all contribute to the stock market's volatility. Similarly, inflation and factors related to relevant sectors also influence the volatility of stocks.

  • Volatility directly influences market fluctuations. Higher volatility leads to a market downtrend, creating the condition for a bear market. Low volatility leads to an uptrend in the market, leading to the possibility of a bull market.

How volatility impacts investments

  • At its simplest, higher volatility leads to the fall in the price of the stocks in one's portfolio, while lower volatility leads to the rise in the price of stocks in one's portfolio. Higher volatility correlates to higher risk and increased possibility of financial loss, while lower volatility relates to lower risk and increased chances of profit.

  • If you are a trader or a short-term investor, you cannot ignore volatility favouring risk mitigation via investments in a diversified portfolio.

  • Volatility also impacts the amount an investor chooses to invest. Generally, investors looking to mitigate the risk from volatility invest a set amount of capital routinely, which keeps the investment costs down and prevents a large amount of money from being tied up in a high volatility market.

  • Volatility can lower the price of investing in companies with a good reputation. That makes a volatile market perfect for investors who wish to invest in good companies at a relatively low cost. Investors must, however, research the upward potential of the company they want to invest in.

  • Volatility in the market may be a key factor influencing investors to get professional counsel regarding their investments. Thus, volatility can contribute towards better investments.

  • The risk of high volatility encourages investors to diversify their portfolios, as a balanced and diversified portfolio is less susceptible to market fluctuations and shocks caused by stock price volatility.

Additional Read: How to start equity investment


Stock market volatility is one of the more essential factors investors must consider before making any investments. Different investors may deal with stock volatility differently, with speculators likely to try and take maximum advantage of said volatility. At the same time, hedgers invest in protecting themselves from market fluctuations caused by volatility.

Most Popular

  • 13 May 2022
  • ICICI Securities

The Five-Point Financial Planning Checklist For Your Family

Whether you just got married or planning to have a baby or have dependents, you should have financial plans for every stage in your life to ensure a secured future for your family members. Here are five things you can do financially for your family.   

  • 12 May 2022
  • ICICI Securities

What is a Zero Coupon Bond?

You get fixed returns in the form of interest until maturity when you invest in a bond. Zero-coupon bonds work a little differently. In this article, find out what zero-coupon bonds are, their advantages and whether you should invest in them. 

  • 12 May 2022
  • ICICI Securities

What are Cross Currency Pairs?

The forex market is the largest financial market globally. Currency trading is a lucrative and booming business. While most currencies trading happens in relation to the US Dollar, some don’t. That forms the basis of cross currency pairs. Here’s what you need to know about it. 

  • 12 May 2022
  • ICICI Securities

Investing principles from Benjamin Graham: The Father of Value Investing

Benjamin Graham was a British born economist, professor, and investor who taught at Columbia University. He was also a mentor to some of the most famous investors of the 20th century, including Irving Khan, John Templeton, & Warren Buffett. Buffett called him "the second most influential figure in his life, only after my father". 

  • 12 May 2022
  • ICICI Securities

How to Invest in Nifty 50?

The Nifty 50 is the benchmark index of the National Stock Exchange. It represents the 50 largest companies listed in India. Investing in the Nifty 50 can be a good idea for those looking to make index-linked returns. Here’s how you can invest in the index. 

  • 12 May 2022
  • ICICI Securities

Investment philosophy of Cathie Wood: The most powerful woman on Wall Street

Catherine Duddy Wood, also called Cathie Wood, is an investor who primarily invests in disruptive technologies and is the founder, chief executive officer, and chief investment officer of ARK Investment Management, LLC, an investment management firm mostly active in the United States.

  • 11 May 2022
  • ICICI Securities

How to Use Technology to Improve Your Finances

Technology has made life simpler for everyone. In the realm of personal finance, technology has streamlined many processes—from budgeting to automating your payments. On National Technology Day, let’s look at how technology has transformed our finances. 

  • 11 May 2022
  • ICICI Securities

How to Invest in your Every Goal with Mutual Funds?

Each of us is unique. We have different needs and goals in life. Some of us can ride along swinging markets, while some may need a relatively conservative investment tool. 

  • 11 May 2022
  • ICICI Securities

Four Reasons Why Entrepreneurs should Invest in Equity Mutual Funds

Equity mutual funds provide growth opportunities not just for individual investors but also for entrepreneurs and corporates. They make excellent investments for anyone looking for wealth creation. This article will give you four reasons why businesspeople should consider investing in equity mutual funds.