4. Means and variances

Two stocks

Air.com

Bricks

Look at the distribution of daily returns.

              Price Today - Price yesterday          
              -----------------------------    x 100
                     Price Yesterday

Two distributions.

 

Table 1: Return distribution for Air.com

Return	-3	-2	-1	0	1	2	3
Probability	0.2	0.1	0.05	0.05	0.1	0.2	0.3

 

Table 2: Return distribution for Bricks

Return	-3	-2	-1	0	1	2	3
Probability	0.1	0.15	0.2	0.3	0.1	0.1	0.05

There are 2 main summary measures, the mean and the variance.