Return Volatility

Return volatility is the standard measure of the dispersion of returns for a given asset, usually calculated as the standard deviation of its logarithmic returns. It serves as the fundamental metric for risk in financial theory, representing the range of potential outcomes over a specific timeframe.

In crypto, return volatility is exceptionally high compared to traditional assets, necessitating specialized risk management tools. It is used to normalize the risk of different assets, allowing for the construction of diversified portfolios.

Traders monitor return volatility to determine the appropriate size of their positions and to set stop-loss levels. It is the baseline from which more complex volatility metrics, such as implied and realized volatility, are derived.