Capital One Financial Corp. Historical Volatility
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 12/31/2010 of 1%, the price range for the day (0.44) was divided by the average price (42.48). 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. Volatility, as measured through various intervals, ( Daily, Weekly, Monthly and Quarterly) is plotted according to color.
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. Average Daily Volatility over the history of COF has been 4% in contrast to the Average Quarterly Volatility of 35%.
If you have ever seen a "yield curve" you should be able to understand the concept behind this "yield curve". 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. |
This histogram is a frequency distribution of Daily Volatility, corresponding to the green points on the first chart on this page. |
Similarly, the purple points on the top chart, the Quarterly Volatility Values, are subjected to frequency distribution here. |
For Subscribers: Refined Analysis of Capital One Financial Corp. Volatility and Risk Behavior
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