Chapter II: This survey looks at historical volatility of Burlington Northern Santa Fe Corporation 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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This chart shows Volatility for Burlington Northern Santa Fe Corporation, defined to be the price range as a portion of the average price: So, to derive the Daily Volatility on 1/21/2010 of 0.1%, the price range for the day (0.14) was divided by the average price (99.22). 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. This is a different concept from the weekly average of daily volatility. The red plot shows the actual price. 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. Average Daily Volatility over the history of BNI has been 2% in contrast to the Average Quarterly Volatility of 22%. |
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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. 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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This histogram is a frequency distribution of Daily Volatility, corresponding to the green points on the first chart on this page. |
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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 BNI : |
| Wednesday, July 28, 2010: We have news on W.W. Grainger, Inc., ticker symbol GWW. Signs of an over-bought condition have become noticable. Also, there are breaking events concerning Cummins Inc. and Quest Diagnostics Incorporated. From the News Archive: (7/27/2010 ) Favorable events happened at Lexmark International, Inc., Range Resources Corp., and Zimmer Holdings, Inc.. Meanwhile, bad news came from QUALCOMM, Inc.. |