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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.

Volatility is defined as the price range for a period, divided by the average price for the period:

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%. 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. 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

A frequency distribution of the green points on the first chart (the daily volatility) yields this histogram.



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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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Back to SBC Table of Contents


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