This chart shows Volatility for Pitney Bowes Inc., defined to be the price range as a portion of the average price:
For instance, on 1/10/2011 the average price was 23.76 with a range of 0.41, indicating a Daily Volatility of 1.7%. 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. 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 PBI has been 2% in contrast to the Average Quarterly Volatility of 20%.
|
