Calculating the daily volatility for any financial instrument provides the investor or trader with a measurement that captures the up and down movement of the instrument through the course of the day's trading session. Knowing a financial instrument's daily volatility gives the investor an assessment of how risky the instrument is. A high level of daily volatility indicates that there is much uncertainty about the price traders are willing to pay for the financial instrument. Investors can use daily volatility to make investment decisions.
Things You'll Need
- Daily data
Identify the highest and lowest price paid for a financial instrument for a given day's trading session. For example, IBM opens the trading day on the New York Stock Exchange at $122 and trades as high as $124 and and as low as $121.
Subtract the daily high from the daily low, or $124 minus $121, or $3.
Add the daily high to its daily low: $124 + $121 = $245.
Divide the difference ($3) by the sum ($245). Multiply this quotient by one hundred, or [(124 - 121) / (124 + 121)] X 100 = 1.22), or 1.2%.
- Photo Credit Jupiterimages/Photos.com/Getty Images
How to Calculate Average Daily Stock Price Volatility
The term "volatility" has several definitions. In a financial context, volatility means the amount a stock price changes over time. So volatility...
How to Construct a Screen for Volatile Stocks
Volatility is a measure of price movement on any given day. The more a particular asset price moves around a mean daily...
How to Calculate Historical Volatility
Investments are usually measured on two things: risk and return. That is because, in general, the higher the risk, the higher the...
How to Measure Volatility of a Stock
The volatility of a stock is the term used to describe the changes and range of a stock price. Volatility is tracked...
How to Annualize Volatility
Annualized volatility is a crucial statistic for comparing the riskiness of different investments such as stocks, commodities and bonds. Any investor deciding...