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For example, a lower volatility stock may have an expected (average) return of 7%, with annual volatility of 5%. Ignoring compounding effects, this would indicate returns from approximately negative 3% to positive 17% most of the time (19 times out of 20, or 95% via a two standard deviation rule).
Stock prices can move around a lot. Reading about the price swings and the day’s news often makes the volatility seem reasonable and other times it just adds to the confusion.
As index arbitrageurs bought the index futures and sold the basket of underlying stocks to bring the futures and the cash market back into line, this contributed to further stock price declines.
By analyzing implied volatility, you can estimate the potential high and low price points for an underlying stock during a specific time, which can make it easier to pick entry and exit points for ...
On the other hand, some investments in physical capital can reduce risk and the value of the risk reduction can be estimated with financial calculation methods, just as market risk in financial markets is estimated. For example energy efficiency investments, in addition to reducing fuel costs, reduce exposure fuel price risk. As less fuel is ...
For instance, the impact of upcoming results of a drug trial can cause implied volatility swings for pharmaceutical stocks. The anticipated resolution date of patent litigation can impact technology stocks, etc. Volatility term structures list the relationship between implied volatilities and time to expiration.