Chapter II: This survey looks at historical volatility of Eastman Kodak prices. The risks associated with long and short term positions can be evaluated according to projected shapes of the Volatility Curve. |
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Volatility is defined as the price range for a period, divided by the average price for the period: For instance, on 7/19/2010 the average price was 4.36 with a range of 0.30, indicating a Daily Volatility of 6.8%. 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. The red plot shows the actual price. 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. During 30 years, the Average Quarterly Volatility of EK stock price has been 24% while the Average Daily Volatility has been 3%. |
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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. As the timespan across which Volatility is measured increases, the Volatility is expected to increase. 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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A frequency distribution of the green points on the first chart (the daily volatility) yields this histogram. |
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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. |
Refined Volatility Risk Analysis for EK : |
| Thursday, July 29, 2010: We have news on Automatic Data Processing, ticker symbol ADP. A significant moving average event has happened. Also, there are breaking events concerning St. Jude Medical, Inc. and W.W. Grainger, Inc.. From the News Archive: (7/28/2010 ) Favorable events happened at Cummins Inc. and Quest Diagnostics Incorporated. Meanwhile, bad news came from Harris Corporation and MetLife, Inc.. |