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Volatility Analysis for Southwest Bell Communications

Chapter II: Understanding Price Volatility behaviour is essential to assessing the risk associated with positions across different time spans.

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Daily Volatility = Price Range as a percent of the daily average price.

This chart shows Volatility for Southwest Bell Communications, defined to be the price range as a portion of the average price:

For instance, on 11/30/2005 the average price was 25.07 with a range of 0.55, 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. 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.

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. Average Daily Volatility over the history of SBC has been 2% in contrast to the Average Quarterly Volatility of 19%.



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Volatility Curve

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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Daily Volatility Histogram

This histogram is a frequency distribution of Daily Volatility, corresponding to the green points on the first chart on this page.



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Quarterly Volatility Histogram

Similarly, the purple points on the top chart, the Quarterly Volatility Values, are subjected to frequency distribution here.

For Subscribers: Refined Analysis of Southwest Bell Communications Volatility and Risk Behavior

Refined Volatility Risk Analysis for SBC :


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More SBC Technical Analysis Topics

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Market Sentiment

Back to SBC Table of Contents


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