Chapter II: This survey looks at historical volatility of Analog Devices, Inc. prices. The risks associated with long and short term positions can be evaluated according to projected shapes of the Volatility Curve. |
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Volatility is defined as the price range for a period, divided by the average price for the period: So, to derive the Daily Volatility on 2/11/2011 of 2.6%, the price range for the day (1.06) was divided by the average price (40.22). Daily Volatility (the daily range as a portion of the daily average price) is plotted in green. Blue is Weekly Volatility, which is the weekly range as a portion of the weekly average price. It is important to avoid confusing this with the weekly average of the daily volatility, which is a completely different concept. For reference, the price is plotted in red. The remaining marks on the plot correspond to the Volatility measured across several time intervals. According to academic theory, Volatility is exactly equal to Risk. But investors often make a distinction between these two concepts. The different character of Volatility as seen in different time frames, lends some support to the investor's view. During 27 years, the Average Quarterly Volatility of ADI stock price has been 33% while the Average Daily Volatility has been 4%. |
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You may be familiar with the "yield curve" which shows how interest bearing yields vary according to term. These Volatility Curves each apply to a discrete time interval. As the timespan across which Volatility is measured increases, the Volatility is expected to increase. The relationship between the length of time, and the expected change in price, is not linear, as is demonstrated by this chart. |
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A frequency distribution of the green points on the first chart (the daily volatility) yields this histogram. |
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In a similar vein, the Frequency Distribution of the Quarterly Volatility is plotted here. This is the distribution of the values plotted in purple on the top chart from this page. |
Refined Volatility Risk Analysis for ADI : |
| Friday, February 18, 2011: We have news on Fiserv, Inc., ticker symbol FISV. Signs of an over-bought condition have become noticable. Also, there are breaking events concerning Zimmer Holdings, Inc. and D.R. Horton, Inc.. From the News Archive: (2/18/2011 ) Favorable events happened at Robert Half International Inc. and Southwestern Energy Company. Meanwhile, bad news came from McCormick & Company, Incorporated and Reynolds American, Inc.. |