Chapter II: This survey looks at historical volatility of General Motors 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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This chart shows Volatility for General Motors, defined to be the price range as a portion of the average price: So, to derive the Daily Volatility on 6/1/2009 of 115.6%, the price range for the day (0.74) was divided by the average price (0.64). 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. This is a different concept from the weekly average of daily volatility. 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. During 29 years, the Average Quarterly Volatility of GM stock price has been 26% while the Average Daily Volatility has been 3%. |
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You may be familiar with the "yield curve" which shows how interest bearing yields vary according to term. 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 GM 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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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 GM : |
| Wednesday, March 17, 2010: We have news on CIGNA Corporation, ticker symbol CI. Signs of an over-bought condition have become noticable. Also, there are breaking events concerning Prudential Financial, Inc. and Patterson Companies, Inc.. From the News Archive: (3/17/2010 ) Favorable events happened at LoJack Corp and Harley-Davidson, Inc.. Meanwhile, bad news came from General Electric and Nucor Corporation. |