What Is the Relationship between Volatility and the Magnitude of Impermanent Loss?

Impermanent loss is directly proportional to the magnitude of the price divergence, which is often a result of high volatility. The greater the price change of one or both assets relative to the initial deposit price, the larger the impermanent loss will be.

For example, a 100% price increase in one asset results in a 5.7% impermanent loss, while a 400% increase results in a 20% loss. Higher volatility increases the likelihood and severity of this loss.