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This chart shows Volatility for Allegheny Energy, Inc., defined to be the price range as a portion of the average price: So, to derive the Daily Volatility on 3/19/2010 of 1.5%, the price range for the day (0.36) was divided by the average price (23.42). 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. Volatility, as measured through various intervals, ( Daily, Weekly, Monthly and Quarterly) is plotted according to color. 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. Average Daily Volatility over the history of AYE has been 2% in contrast to the Average Quarterly Volatility of 19%. |
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You may be familiar with the "yield curve" which shows how interest bearing yields vary according to term. Each Volatility Curve is a snapshot in time. As the timespan across which Volatility is measured increases, the Volatility is expected to increase. However, as seen in this plot of the AYE Volatility Curve, the increase is not constant. |
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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 AYE : |
| Friday, March 19, 2010: We have news on AT and T, ticker symbol T. A significant moving average event has happened. Also, there are breaking events concerning L-3 Communications Holdings, Inc. and Electronic Data Systems. From the News Archive: (3/18/2010 ) Bad news came from Mylan Inc., TECO Energy, Inc., MicroSoft, and Goldman Sachs Group, Inc.. |