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 12/23/2010 of 0.3%, the price range for the day (0.53) was divided by the average price (138.04). 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. 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. During 26 years, the Average Quarterly Volatility of GWW stock price has been 20% while the Average Daily Volatility has been 2%.
|
