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Volatility is defined as the price range for a period, divided by the average price for the period: For instance, on 12/8/2009 the average price was 19.31 with a range of 0.28, indicating a Daily Volatility of 1.4%. 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. For reference, the price is plotted in red. The remaining marks on the plot correspond to the Volatility measured across several time intervals. 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 MER has been 4% in contrast to the Average Quarterly Volatility of 37%. |
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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 MER 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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Similarly, the purple points on the top chart, the Quarterly Volatility Values, are subjected to frequency distribution here. |
Refined Volatility Risk Analysis for MER : |
| Thursday, March 18, 2010: We have news on MicroSoft, ticker symbol MSFT. Signs of an over-bought condition have become noticable. Also, there are breaking events concerning Goldman Sachs Group, Inc. and LoJack Corp. From the News Archive: (3/17/2010 ) Favorable events happened at ACM Income Fund and Martha Stewart. Meanwhile, bad news came from Sempra Energy and Walmart. |