Trading

Volatility

Volatility is a statistical measure of the dispersion of returns for a given security or market index, essentially a measure of risk. High volatility signifies larger price swings and thus more potential for profit (and loss). The Sharpe Ratio measures the performance of an investment compared to a risk-free asset, after adjusting for its risk (usually evaluated by its volatility). Higher Sharpe ratios indicate better risk-adjusted returns.

The connection with [[ Balance (or Equilibrium)#Mean Reversion|mean reversion ]] is evident when we realize that a high volatility often leads to more significant deviations from the mean, which may eventually revert back to the mean, presenting trading opportunities. A low Sharpe Ratio might suggest that the returns are not adequately compensating for the risk taken (measured in volatility).

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Balance (or equilibrium)
The key to life is balance. Most systems tend towards balance and equilibrium in their ideal states, whether they be...

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