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This chart shows Volatility for McDonalds, defined to be the price range as a portion of the average price: So, to derive the Daily Volatility on 2/4/2010 of 1.9%, the price range for the day (1.25) was divided by the average price (64.64). 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 MCD has been 2% in contrast to the Average Quarterly Volatility of 19%. |
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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. However, as seen in this plot of the MCD Volatility Curve, the increase is not constant. |
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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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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 MCD : |
| Friday, February 05, 2010: We have news on Genzyme Corporation, ticker symbol GENZ. A significant moving average event has happened. Also, there are breaking events concerning Archer-Daniels-Midland and Pactiv Corporation. From the News Archive: (2/5/2010 ) Favorable events happened at Wells Fargo & Company, Marathon Oil Corporation, Dell Inc., and Principal Financial Group, Inc.. |