Chapter II: Understanding Price Volatility behaviour is essential to assessing the risk associated with positions across different time spans. |
| Prev. Co. | Next Co. | |
|
| ||
|
This chart shows Volatility for NiSource Inc., defined to be the price range as a portion of the average price: For instance, on 2/18/2011 the average price was 19.1 with a range of 0.14, indicating a Daily Volatility of 0.7%. 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. 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 NI has been 2% in contrast to the Average Quarterly Volatility of 17%. |
| Prev. Co. | Next Co. | |
| ||
|
If you have ever seen a "yield curve" you should be able to understand the concept behind this "yield curve". These Volatility Curves each apply to a discrete time interval. From left to right, each position plots the Volatility associated with increasing intervals of time. The relationship between the length of time, and the expected change in price, is not linear, as is demonstrated by this chart. |
| 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 NI : |
| 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 McCormick & Company, Incorporated. From the News Archive: (2/18/2011 ) Bad news came from Reynolds American, Inc., Dollar Tree, Inc., Zimmer Holdings, Inc., and NVIDIA Corp. |