Chapter II: Risks associated with short and long period price changes can be understood through Volatility Analysis. Here the impact of the Volatility Curve on the potential profitability positions across different time spans is shown. |
| Prev. Co. | Next Co. | |
|
| ||
|
Volatility is defined as the price range for a period, divided by the average price for the period: For instance, on 2/3/2011 the average price was 3.79 with a range of 0.08, indicating a Daily Volatility of 2.1%. 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 12 years, the Average Quarterly Volatility of MSO stock price has been 49% while the Average Daily Volatility has been 5%. |
| Prev. Co. | Next Co. | |
| ||
|
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 MSO Volatility Curve, the increase is not constant. |
| Prev. Co. | Next Co. | |
| ||
|
This histogram is a frequency distribution of Daily Volatility, corresponding to the green points on the first chart on this page. |
| Prev. Co. | Next Co. | |
| ||
|
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 MSO : |
| Friday, February 18, 2011: We have news on Fiserv, Inc., ticker symbol FISV. Signs of an over-bought condition have become noticable. Also, there are breaking events concerning Zimmer Holdings, Inc. and D.R. Horton, Inc.. From the News Archive: (2/18/2011 ) Favorable events happened at Robert Half International Inc. and Southwestern Energy Company. Meanwhile, bad news came from McCormick & Company, Incorporated and Reynolds American, Inc.. |