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 6/26/2009 of 1.3%, the price range for the day (1.45) was divided by the average price (105.78). Daily Volatility (the daily range as a portion of the daily average price) is plotted in green. Blue is Weekly Volatility, which is the weekly range as a portion of the weekly average 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.
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 IBM stock price has been 20% while the Average Daily Volatility has been 2%.
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