This chart shows Volatility for American Airlines, defined to be the price range as a portion of the average price:
For instance, on 2/17/2011 the average price was 7.49 with a range of 0.12, indicating a Daily Volatility of 1.6%. 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. This is a different concept from the weekly average of daily volatility.
For reference, the price is plotted in red. The remaining marks on the plot correspond to the Volatility measured across several time intervals.
Investors often make a distinction between the concept of Volatility, and the concept of Risk. Academics define them to be exactly equivalent, but as can be seen here, there is good reason to distinguish between the levels of volatility or risk experienced across different time frames. During 31 years, the Average Quarterly Volatility of AMR stock price has been 38% while the Average Daily Volatility has been 4%.
|
