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Dow Industrials Historical Volatility

Chapter II: Risks associated with short and long period price changes can be understood through Volatility Analysis. Here the impact of the Volatility Curve on the potential profitability positions across different time spans is shown.

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Daily Volatility = Price Range as a percent of the daily average price. of Dow Industrials

Volatility is defined as the price range for a period, divided by the average price for the period:

For instance, on 6/19/2009 the average price was 8570.64 with a range of 189.24, indicating a Daily Volatility of 2.2%. 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.

For reference, the price is plotted in red. The remaining marks on the plot correspond to the Volatility measured across several time intervals.

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 DJIA has been 2% in contrast to the Average Quarterly Volatility of 13%.



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Volatility Curve of Dow Industrials

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. From left to right, each position plots the Volatility associated with increasing intervals of time. 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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Daily Volatility Histogram of Dow Industrials

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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Quarterly Volatility Histogram of Dow Industrials

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.

For Subscribers: Refined Analysis of Dow Industrials Volatility and Risk Behavior

Refined Volatility Risk Analysis for DJIA :


Companies in the News:

In the news, Wednesday, July 01, 2009: An unfavorable condition has developed with Lexmark International, Inc., ticker symbol LXK. Also, there are breaking events concerning Lennar Corporation (LEN) and The Travelers Companies, Inc. (TRV)

More DJIA Technical Analysis Topics

DJIA Price Predictions

Support and Resistance Levels

Politics and Prices of DJIA

Japanese Candlestick Analysis

Momentum Investing Indicators

DJIA Classical Analysis of Time Series

DJIA Historical Volume

DJIA Seasonal Trends

Back to DJIA Table of Contents


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