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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 2/26/2010 of 1.9%, the price range for the day (0.35) was divided by the average price (18.2). 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. The red plot shows the actual price. Volatility, as measured through various intervals, ( Daily, Weekly, Monthly and Quarterly) is plotted according to color. 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. During 13 years, the Average Quarterly Volatility of TLM stock price has been 28% while the Average Daily Volatility has been 3%. |
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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. From left to right, each position plots the Volatility associated with increasing intervals of time. 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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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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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 TLM : |
| In the news, Friday, March 19, 2010: An unfavorable condition has developed with Cincinnati Financial Corporation, ticker symbol CINF. Also, there are breaking events concerning Pre-Paid Legal (PPD) and Electronic Data Systems (EDS) |