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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 2.4%, the price range for the day (0.95) was divided by the average price (39.5). 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. 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. Average Daily Volatility over the history of JWN has been 4% in contrast to the Average Quarterly Volatility of 31%. |
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You may be familiar with the "yield curve" which shows how interest bearing yields vary according to term. 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. |
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This histogram is a frequency distribution of Daily Volatility, corresponding to the green points on the first chart on this page. |
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Similarly, the purple points on the top chart, the Quarterly Volatility Values, are subjected to frequency distribution here. |
Refined Volatility Risk Analysis for JWN : |
| Friday, March 19, 2010: We have news on AT and T, ticker symbol T. A significant moving average event has happened. Also, there are breaking events concerning L-3 Communications Holdings, Inc. and Electronic Data Systems. From the News Archive: (3/18/2010 ) Bad news came from Mylan Inc., TECO Energy, Inc., MicroSoft, and Goldman Sachs Group, Inc.. |