Knowledge Tree
volatility
Facts (39)
Sources
Wealthfront Classic Portfolio Investment Methodology White Paper research.wealthfront.com Mar 9, 2026 8 facts
claimInvestments focused on a smaller subset of assets, such as real estate, tend to be less diversified and exhibit higher volatility.
claimUS bonds are high-quality debt instruments issued by the US Treasury, government agencies, and US corporations, providing steady income, low historical volatility, and low correlation with stocks.
claimTreasury Inflation-Protected Securities (TIPS) are the only asset class that provides both income generation and inflation protection to risk-averse investors due to their inflation-indexed feature and low historical volatility.
claimStocks provide exposure to economic growth and potential long-term capital appreciation, though they are characterized by high volatility.
claimEmerging market stocks are more volatile than US stocks and foreign developed market stocks, but are expected to deliver higher long-term returns.
claimMunicipal bonds provide individual investors in high tax brackets with a tax-efficient way to obtain income, low historical volatility, and diversification.
claimMean-variance optimization requires estimates of each asset class’s expected return, volatility, and pairwise correlations as inputs, but the method is sensitive to these parameters and tends to produce concentrated and unintuitive portfolios if the parameters are naively specified.
claimBonds and bond-like securities are used for income generation and can help reduce risk in stock-heavy portfolios during economic uncertainty due to their historically lower volatility and lower correlation with stocks.
The Relationship Between Risk and Return in Different Asset Classes bi-sam.com Mar 18, 2025 7 facts
measurementBetween 1926 and 2023, Large-Cap Stocks had a historical average annual return of 10.2% and a volatility (standard deviation) of 19.8%.
measurementBetween 1926 and 2023, Emerging Markets stocks had a historical average annual return of 11.6% and a volatility (standard deviation) of 28.7%.
measurementInvestment risk is typically measured using standard deviation to measure volatility, beta to measure market sensitivity, and maximum drawdown to measure the largest peak-to-trough decline.
measurementBetween 1926 and 2023, Mid-Cap Stocks had a historical average annual return of 11.7% and a volatility (standard deviation) of 22.5%.
claimEquities represent ownership stakes in companies and have historically provided the highest returns among traditional asset classes over long time periods, though they carry higher volatility and risk of loss in the short term.
measurementBetween 1926 and 2023, Small-Cap Stocks had a historical average annual return of 11.9% and a volatility (standard deviation) of 25.1%.
measurementBetween 1926 and 2023, International Developed stocks had a historical average annual return of 9.1% and a volatility (standard deviation) of 22.1%.
Next Generation Investment Risk Management: Putting the 'Modern ... financialplanningassociation.org 6 facts
claimThe portfolio optimization process should be enhanced to incorporate non-normal distributions of returns and recognize that an investment horizon is not a single uninterrupted period, allowing the optimizer to reflect how volatility erodes returns and show the beneficial effects of rebalancing.
claimAny asset with volatility greater than zero will experience erosion of its multi-year return, and higher volatility leads to greater erosion.
claimRisk drag is the phenomenon where the volatility of an asset's return over time erodes the compound return to the investor.
claimUsing compound annual return as an input in Modern Portfolio Theory (MPT) models is problematic because expected compound returns vary by investment horizon and the degree of risk drag depends on future volatility.
claimThe simplest method for categorizing market regimes involves distinguishing between "quiet" regimes, where markets behave normally, and "turbulent" regimes, which are characterized by low returns, high volatility, and a dramatic rise in correlations between normally uncorrelated assets.
claimDiversifying between two assets with perfect negative correlation allows an investor to eliminate volatility, and regular rebalancing can increase the portfolio's return over time by reducing risk drag.
Chapter 8 – Risk and Return – Fundamentals of Finance pressbooks.pub 5 facts
claimBeta values indicate the volatility of a stock relative to the overall market; a stock with a beta of 1.8 is more volatile than a stock with a beta of 0.6, meaning the former will experience larger price swings when the market declines.
claimStandard deviation measures the variability or volatility of investment returns relative to the expected return, which quantifies the investment's risk.
claimHigh-beta stocks are characterized by higher volatility and often offer higher potential returns at increased risk, whereas low-beta stocks exhibit lower volatility and appeal to risk-averse investors.
claimAssets with high correlation are likely to experience similar performance, which does not reduce portfolio risk and may lead to higher volatility.
claimLimitations of the Capital Asset Pricing Model (CAPM) include the potential inaccuracy of historical betas in predicting future volatility, the influence of factors like company size or momentum on returns, and the unrealistic assumption of a single risk-free rate for international or multi-currency investments.
Key Macroeconomic Indicators Every Investor Should Track rosenbergresearch.com May 19, 2025 2 facts
claimInvestors should maintain a diversified mix of growth-oriented and defensive holdings to manage volatility across economic cycles.
procedureThe procedure for managing investment strategy based on GDP data involves three steps: (1) Review upcoming GDP release calendars to assess potential impacts on sector allocations or risk exposure, (2) Maintain a diversified mix of growth-oriented and defensive holdings to manage volatility across economic cycles, and (3) Overweight sectors such as technology and consumer discretionary during periods of economic expansion.
A Complete Guide to Investment Vehicles | Money for The Rest of Us moneyfortherestofus.com Oct 2, 2025 2 facts
claimVolatility measures how much an investment's performance deviates from its expected return, with higher volatility resulting in wider performance swings compared to lower volatility investments.
claimA less volatile investment typically sees most of its annual returns congregate around the expected return, whereas a volatile investment sees more returns well above or well below the expected return.
The Importance of Macroeconomic Indicators - Learning Spotlight wtwealthmanagement.com Feb 11, 2026 2 facts
claimWT Wealth Management asserts that narrowly focused investments, investments in smaller companies, sector or thematic ETFs, and investments in single countries typically exhibit higher volatility than normal investment risks.
claimNarrowly focused investments, investments in smaller companies, and sector or thematic ETFs typically exhibit higher volatility than broader market investments.
How the risk-return tradeoff principle works - Urbanitae Blog blog.urbanitae.com Mar 5, 2025 2 facts
formulaThe Sharpe ratio measures risk-adjusted return by dividing the excess return obtained over a risk-free investment by the investment’s volatility.
claimA beta value of 1 indicates that an investment moves in parallel with the market, while values above or below 1 indicate higher or lower volatility, respectively.
Six financial literacy principles - RBC Wealth Management rbcwealthmanagement.com 1 fact
claimDiversification involves creating a portfolio that includes different types of investments to reduce overall risk and volatility.
The Impact of Cognitive Biases on Professionals' Decision-Making frontiersin.org 1 fact
claimIn the 1970s, observations regarding financial market trading behavior, volatility, market returns, and portfolio selection were identified as inconsistent with the standard finance framework and were termed 'anomalies'.
Understanding Behavioral Aspects of Financial Planning and Investing financialplanningassociation.org Mar 1, 2015 1 fact
measurementIn a 1999 survey of 265 financial advisers, MacGregor, Slovic, Berry, and Evensky reported that 98 percent of an expert’s risk perception is attributable to three major factors: worry, volatility, and knowledge.
Mapping Asset Returns to Economic Regimes: A Practical Investor's ... insight.factset.com Sep 9, 2025 1 fact
claimEmerging-market equities provide the highest average return among all asset classes, though this performance is accompanied by higher volatility.
Understanding the Relationship Between Risk and Return for ... dunbrook.ca Nov 4, 2025 1 fact
claimThe longer an investor's time horizon, the more volatility they can typically withstand.