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. | |
|
| ||
|
This chart shows Volatility for Nextel, defined to be the price range as a portion of the average price: So, to derive the Daily Volatility on 8/12/2005 of 5.8%, the price range for the day (2.02) was divided by the average price (34.31). 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. 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 13 years, the Average Quarterly Volatility of NXTL stock price has been 46% while the Average Daily Volatility has been 5%. |
| Prev. Co. | Next Co. | |
| ||
|
You may be familiar with the "yield curve" which shows how interest bearing yields vary according to term. These Volatility Curves each apply to a discrete time interval. As the timespan across which Volatility is measured increases, the Volatility is expected to increase. However, as seen in this plot of the NXTL Volatility Curve, the increase is not constant. |
| Prev. Co. | Next Co. | |
| ||
|
A frequency distribution of the green points on the first chart (the daily volatility) yields this histogram. |
| Prev. Co. | Next Co. | |
| ||
|
Similarly, the purple points on the top chart, the Quarterly Volatility Values, are subjected to frequency distribution here. |
Refined Volatility Risk Analysis for NXTL : |
| In the news, Friday, February 05, 2010: A favorable condition has developed with United Technologies, ticker symbol UTX. Also, there are breaking events concerning ACM Income Fund (ACG) and MicroSoft (MSFT) |