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 Deere & Company, defined to be the price range as a portion of the average price: So, to derive the Daily Volatility on 8/27/2010 of 4.6%, the price range for the day (2.95) was divided by the average price (63.38). 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. 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 DE has been 3% in contrast to the Average Quarterly Volatility of 24%. |
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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. From left to right, each position plots the Volatility associated with increasing intervals of time. However, as seen in this plot of the DE Volatility Curve, the increase is not constant. |
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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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Similarly, the purple points on the top chart, the Quarterly Volatility Values, are subjected to frequency distribution here. |
Refined Volatility Risk Analysis for DE : |
| Wednesday, September 01, 2010: We have news on priceline.com Incorporated, ticker symbol PCLN. A significant moving average event has happened. Also, there are breaking events concerning O'Reilly Automotive, Inc. and Boston Scientific Corporation. From the News Archive: (8/31/2010 ) Favorable events happened at J.B. Hunt Transport Services, Inc., Broadcom Corporation, Netease.com, Inc., and Rockwell Automation. |