Key takeaways
- Volatility measures how strongly the value of your portfolio fluctuates - the higher it is, the bumpier the ride.
- Talantor shows it annualised in percent per year, calculated from the daily returns of your real time-weighted value history.
- It is a measure of risk in the sense of uncertainty, not of loss: swings upwards count just as much as swings downwards.
What is volatility?
Volatility describes the range of fluctuation of your return. Technically, it is the standard deviation of returns: how far do the individual daily results deviate from their mean on average? A calm portfolio with small, steady movements has low volatility; one with big jumps up and down has high volatility.
Important: volatility does not distinguish between gain and loss. A strong price jump upwards raises the metric just as much as a slump. So it measures uncertainty, not damage - for downside risk alone there are dedicated metrics such as the maximum drawdown or the Sortino ratio.
How Talantor calculates it
Talantor takes the daily returns from your time-weighted value history (that is, adjusted for your deposits and withdrawals) and calculates their standard deviation. Because this history has a value for every calendar day - on weekends and public holidays the last price is carried forward - it is annualised on a calendar-day basis: the daily fluctuation is multiplied by the square root of 365. This gives the annualised volatility in percent per year.
How to interpret the value
As a rough guide: over the long term, a broadly diversified equity portfolio often moves in the mid double-digit percentage range per year, individual stocks well above that, a mixed portfolio with bonds below it. What matters is less the absolute value than the comparison - with your own history over time or between different strategies.
A tangible example: if volatility is 15% per year, then under the usual assumption the annual return lies within about plus/minus 15% of its mean in roughly two out of three years. That is a rule of thumb, not a guarantee - real markets have more extreme swings than this simple assumption implies.
Good to know
High volatility is not bad in itself. If you invest for the long term and can sit out fluctuations, the Sharpe and Sortino ratios reward you for it when the return justifies the fluctuation.