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 8/27/2010 of 2.2%, the price range for the day (0.79) was divided by the average price (34.72). 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. 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. During 30 years, the Average Quarterly Volatility of MRK stock price has been 20% while the Average Daily Volatility has been 2%.
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