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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 3/12/2010 of 1.1%, the price range for the day (0.61) was divided by the average price (52.13). 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. Average Daily Volatility over the history of HPQ has been 3% in contrast to the Average Quarterly Volatility of 27%. |
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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. The relationship between the length of time, and the expected change in price, is not linear, as is demonstrated by this chart. |
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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 HPQ : |
| In the news, Wednesday, March 17, 2010: An unfavorable condition has developed with CIGNA Corporation, ticker symbol CI. Also, there are breaking events concerning LoJack Corp (LOJN) and ConocoPhillips (COP) |