Volatility mean reversion
Why does unusually high or low volatility usually drift back towards normal, and what does that mean for risk?
In plain words
Volatility mean reversion is the tendency for volatility clusters — stretches of unusually large or unusually small price swings — to ease back towards their long-run average over time. Periods of calm and periods of turmoil both tend to be temporary, though the pace of the return varies.
Why it matters
Risk measures built on recent volatility quietly assume the recent past resembles the near future. When volatility is very low, positions sized on that calm can become too large once swings widen; when volatility is very high, sizing based on the spike may leave a trader needlessly small as conditions settle.
In a real week: BTC, week of 10 August 2026
In the week of 10 August 2026, BTC's realised volatility was 19.3% a year, its weekly range was 4.57%, and the largest hourly move was -0.75% at 14:00 UTC on Wednesday 12 August. Volume was 0.61 times its prior 12-week average, and the daily moves ran from -1.44% on Monday to +0.07% on Saturday, with the week's return at the 25th percentile against 443 weeks of history. The data records the level reached, not whether it then drifted towards normal.
A common mistake
Reading mean reversion as a schedule. It states a direction, not a date: volatility that is unusually low or high tends to move back towards average, but the timing and path are unknown.