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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This chart shows Volatility for Express Scripts, Inc., defined to be the price range as a portion of the average price: So, to derive the Daily Volatility on 8/27/2010 of 4.5%, the price range for the day (2.00) was divided by the average price (44.26). 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. 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. Average Daily Volatility over the history of ESRX has been 4% in contrast to the Average Quarterly Volatility of 34%. |
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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 ESRX 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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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 ESRX : |
| In the news, Friday, September 03, 2010: An unfavorable condition has developed with UST Inc., ticker symbol UST. Also, there are breaking events concerning Mitsui & Company, Ltd. (MITSY) and Panera Bread Company (PNRA) |