Stock volatility is just a numerical indication of how variable the price of a specific stock is. However, stock volatility is often misunderstood. Some think it refers to risk involved in owning a particular company's stock. Some assume it refers to the uncertainty inherent in owning a stock. Neither is the case. For investors it represents an important measure of how desirable it is to own a certain stock, based on the investor's appetite for risk and reward. Here's how to calculate stock volatility.
This is illustrated by the following equation | ||||
The formula for computing the Historical Volatility (HV), is: |
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$$ s = \sqrt { \frac {1}{n-1} \sum_{i=1}^n {(x_i - m)^2} }$$
Where s = standard deviation n = number of continuous returns (not number of days) xi = continuous returns m = mean price change |
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Optional: Scale as necessaryWe need third party historical data from google or yahoo or any other site,also we are using google line graph. To scale the historical volatility, multiply the HV by the square root of the scale factor. $$ Daily \space HV = {HV} * {\sqrt {1 \space \space trading \space day}} $$ $$ Weekly \space HV = {HV} * {\sqrt {1week \space trading \space days}} $$ $$ Monthly \space HV = {HV} * {\sqrt {1month \space trading \space days}} $$ |
Variables |
Symbol = stock symbol. |
Start date = Start date. |
End date = End date. |
Period = Daily,Weekly,Monthly. |
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