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This chart shows Volatility for Waters Corporation, defined to be the price range as a portion of the average price: For instance, on 12/16/2010 the average price was 79.87 with a range of 1.58, indicating a Daily Volatility of 1.9%. 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. 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. 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. During 15 years, the Average Quarterly Volatility of WAT stock price has been 31% while the Average Daily Volatility has been 3%. |
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You may be familiar with the "yield curve" which shows how interest bearing yields vary according to term. 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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A frequency distribution of the green points on the first chart (the daily volatility) yields this histogram. |
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Similarly, the purple points on the top chart, the Quarterly Volatility Values, are subjected to frequency distribution here. |
Refined Volatility Risk Analysis for WAT : |
| Friday, February 18, 2011: We have news on Fiserv, Inc., ticker symbol FISV. Signs of an over-bought condition have become noticable. Also, there are breaking events concerning Zimmer Holdings, Inc. and D.R. Horton, Inc.. From the News Archive: (2/18/2011 ) Favorable events happened at Robert Half International Inc. and Southwestern Energy Company. Meanwhile, bad news came from McCormick & Company, Incorporated and Reynolds American, Inc.. |