← Glossary · Liquid State

Realized Volatility (Historical Volatility)

Realized volatility (also called historical volatility, or HV) is calculated by taking the standard deviation of an asset's log returns over a lookback period — commonly 30, 60, 90, or 180 days — and annualizing the result. A 30-day realized volatility reading of 60% means that, over the past month, price moved at an annualized rate equivalent to a 60% standard deviation. Because the calculation uses only past price data, realized volatility is entirely backward-looking: it describes how volatile an asset has been, not how volatile it will be.

Realized volatility is typically expressed as a percentile rank against its own history. A current HV30 reading at the 90th percentile of the past two years means recent price swings have been unusually large compared to the typical range. A reading below the 20th percentile indicates a compressed, calm period. Volatility tends to cluster and mean-revert: prolonged compression often precedes expansion, and extreme readings often precede quieter periods, though neither pattern is mechanically reliable.

Systematic traders compare realized volatility to implied volatility — the forward-looking estimate priced into options. When realized vol is substantially lower than implied vol, options are pricing in more risk than has been materializing, a relationship tracked by the variance risk premium. When realized vol exceeds implied vol, the market underestimated realized movement. For position sizing and risk framing, realized volatility provides a data-grounded reference for how much an asset has moved — a factual input, not a forecast.