Chapter II: This survey looks at historical volatility of Procter and Gamble prices. The risks associated with long and short term positions can be evaluated according to projected shapes of the Volatility Curve. |
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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 1/29/2010 of 1.2%, the price range for the day (0.77) was divided by the average price (61.86). 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. 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 PG has been 2% in contrast to the Average Quarterly Volatility of 16%. |
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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. As the timespan across which Volatility is measured increases, the Volatility is expected to increase. The relationship between the length of time, and the expected change in price, is not linear, as is demonstrated by this chart. |
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A frequency distribution of the green points on the first chart (the daily volatility) yields this histogram. |
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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 PG : |
| In the news, Monday, February 08, 2010: A favorable condition has developed with Nicor Inc., ticker symbol GAS. Also, there are breaking events concerning American International Group, Inc. (AIG) and United Technologies (UTX) |