Volatility is the relative rate at which a price of an asset may move, either appreciating or depreciating, over a specific period of time. If an asset's relative price changes rapidly (either positively or negatively) over a period of time, it will be considered to have high volatility. Conversely, if an asset's relative price changes are not rapid, it will be considered to have low volatility. A high level of volatility is considered to be an indication that an asset may have greater risk.
In other words, volatility refers to the amount of uncertainty or risk about the size of changes in an assets value. A higher volatility means that an asset’s value can potentially be spread out over a larger range of values. This means that the price of the asset can change dramatically over a short time period in either direction. A lower volatility means that an asset’s value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.
One measure of the volatility of an asset is standard deviation. For example, an asset with an annual standard deviation of 16% p.a. has historically moved by up to plus or minus 2% - 95% of the time on any given day.