This chart shows Volatility for Ecolab Inc., defined to be the price range as a portion of the average price:
For instance, on 3/11/2010 the average price was 42.41 with a range of 0.59, indicating a Daily Volatility of 1.3%. 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. 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. Volatility, as measured through various intervals, ( Daily, Weekly, Monthly and Quarterly) is plotted according to color.
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 ECL has been 2% in contrast to the Average Quarterly Volatility of 18%.
|
