Chapter II: Understanding Price Volatility behaviour is essential to assessing the risk associated with positions across different time spans. |
| Prev. Co. | Next Co. | |
|
| ||
|
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 1/14/2011 of 2.9%, the price range for the day (0.17) was divided by the average price (5.8). 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. 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 18 years, the Average Quarterly Volatility of DYN stock price has been 44% while the Average Daily Volatility has been 4%. |
| Prev. Co. | Next Co. | |
| ||
|
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. However, as seen in this plot of the DYN Volatility Curve, the increase is not constant. |
| Prev. Co. | Next Co. | |
| ||
|
A frequency distribution of the green points on the first chart (the daily volatility) yields this histogram. |
| Prev. Co. | Next Co. | |
| ||
|
Similarly, the purple points on the top chart, the Quarterly Volatility Values, are subjected to frequency distribution here. |
Refined Volatility Risk Analysis for DYN : |
| Friday, February 18, 2011: We have news on Fiserv, Inc., ticker symbol FISV. Signs of an over-bought condition have become noticable. Also, there are breaking events concerning Zimmer Holdings, Inc. and McCormick & Company, Incorporated. From the News Archive: (2/18/2011 ) Bad news came from Reynolds American, Inc., Dollar Tree, Inc., Zimmer Holdings, Inc., and NVIDIA Corp. |