This chart shows Volatility for Coventry Health Care, Inc., defined to be the price range as a portion of the average price:
So, to derive the Daily Volatility on 2/18/2011 of 1.7%, the price range for the day (0.54) was divided by the average price (30.55). The Daily Volatility is obtained by dividing the daily range by the daily average. A longer Volatility period such as Weekly Volatility is obtained by dividing the weekly price range by the weekly mean price. It is important to avoid confusing this with the weekly average of the daily volatility, which is a completely different concept.
The red plot shows the actual price. 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. During 20 years, the Average Quarterly Volatility of CVH stock price has been 40% while the Average Daily Volatility has been 4%.
|
