Chapter II: Understanding Price Volatility behaviour is essential to assessing the risk associated with positions across different time spans. |
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This chart shows Volatility for ConocoPhillips, defined to be the price range as a portion of the average price: For instance, on 9/1/2010 the average price was 53.75 with a range of 0.92, indicating a Daily Volatility of 1.7%. 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. Average Daily Volatility over the history of COP has been 3% in contrast to the Average Quarterly Volatility of 22%. |
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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. |
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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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Similarly, the purple points on the top chart, the Quarterly Volatility Values, are subjected to frequency distribution here. |
Refined Volatility Risk Analysis for COP : |
| Tuesday, September 07, 2010: We have news on Qiagen N.V., ticker symbol QGEN. A significant moving average event has happened. Also, there are breaking events concerning Mattel, Inc. and SYSCO Corporation. From the News Archive: (9/7/2010 ) Bad news came from Expeditors International of Washington, Brocade Communications Systems, Inc., Varian Medical Systems, Inc., and Apartment Investment and Management Co.. |