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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 9/3/2010 of 4.1%, the price range for the day (1.80) was divided by the average price (43.17). 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. The red plot shows the actual price. Volatility, as measured through various intervals, ( Daily, Weekly, Monthly and Quarterly) is plotted according to color. 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 FDO has been 3% in contrast to the Average Quarterly Volatility of 28%. |
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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. However, as seen in this plot of the FDO Volatility Curve, the increase is not constant. |
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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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Similarly, the purple points on the top chart, the Quarterly Volatility Values, are subjected to frequency distribution here. |
Refined Volatility Risk Analysis for FDO : |
| Friday, September 03, 2010: We have news on Hewlett Packard, ticker symbol HPQ. Signs of an over-bought condition have become noticable. Also, there are breaking events concerning Apartment Investment and Management Co. and Electronic Data Systems. From the News Archive: (9/3/2010 ) A favorable event happened at Apache. Meanwhile, bad news came from Mitsui & Company, Ltd., Panera Bread Company, and Discovery Communications, Inc. |