Historical Volatility refers to the statistical measure of the degree of variation in an assetís price over a specific period in the past. It helps investors and traders assess how much the price of a stock, index, or other financial instrument has fluctuated historically, offering insights into its risk profile and potential price behavior.

In simple terms, historical volatility (HV) quantifies how much an assetís returns have deviated from its average return. A higher HV indicates that the assetís price has shown large swings ó both upward and downward ó while a lower HV suggests more stable price movements. This measure is often expressed as an annualized percentage and calculated using the standard deviation of past returns over a defined timeframe, such as 30, 60, or 90 days.

Traders and analysts use historical volatility to evaluate market risk and price uncertainty. For example, if a stockís HV is high, it signals that the stock may experience sharp price movements, making it suitable for short-term or high-risk trading strategies. Conversely, low volatility stocks are often preferred by conservative investors seeking steady returns.

It is important to note that historical volatility does not predict future price movements; it only reflects how volatile the asset has been in the past. Market conditions, news events, and economic data can all impact future volatility, sometimes making past data less reliable.

In summary, historical volatility is a crucial analytical tool that provides a backward-looking measure of price fluctuation, helping investors gauge risk levels and make informed portfolio or derivative trading decisions.