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Volatility is defined as the price range for a period, divided by the average price for the period: For instance, on 3/10/2010 the average price was 29.83 with a range of 0.42, indicating a Daily Volatility of 1.4%. 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. For reference, the price is plotted in red. 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. During 27 years, the Average Quarterly Volatility of VZ stock price has been 17% while the Average Daily Volatility has been 2%. |
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If you have ever seen a "yield curve" you should be able to understand the concept behind this "yield curve". Each Volatility Curve is a snapshot in time. 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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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 VZ : |
| Wednesday, March 17, 2010: We have news on LoJack Corp, ticker symbol LOJN. A favorable momentum event has happened. Also, there are breaking events concerning Patterson Companies, Inc. and Prudential Financial, Inc.. From the News Archive: (3/17/2010 ) A favorable event happened at ACM Income Fund. Meanwhile, bad news came from Walmart, General Electric, and CIGNA Corporation. |