Volatility Analysis for Honeywell
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 12/13/2010 of 0.9%, the price range for the day (0.51) was divided by the average price (52.15). 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.
For reference, the price is plotted in red. The remaining marks on the plot correspond to the Volatility measured across several time intervals.
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 HON stock price has been 22% while the Average Daily Volatility has been 2%.
If you have ever seen a "yield curve" you should be able to understand the concept behind this "yield curve". Each Volatility Curve is a snapshot in time. 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. |
A frequency distribution of the green points on the first chart (the daily volatility) yields this histogram. |
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. |
For Subscribers: Refined Analysis of Honeywell Volatility and Risk Behavior
Companies in the News:
|In the news, Friday, February 18, 2011: An unfavorable condition has developed with Aetna Inc., ticker symbol AET. Also, there are breaking events concerning Dollar Tree, Inc. (DLTR) and First Niagara Financial Group Inc. (FNFG)|
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