Understanding 52-week Stock Ranges

One of the many financial stock market terms that you must have come across at some point in time is the 52-week range.

One of the many financial stock market terms that you must have come across at some point in time is the 52-week range. Now, while you don’t need an analyst to explain what a 52-week range means because it is pretty much imbedded in its name, there is so much you can do when analysing stock prices with the range that not many people are familiar with. The range represents the highest and lowest price of a stock over a period of 52 weeks (a year). The two numbers show the extreme numbers that the price of a stock has either fallen to or risen to over a period of 52 weeks and its purpose is to guide you and I in making valid investment sell or buy decisions.

In essence, investors use this information to determine the volatility of a stock over same period, assessing how much risk and fluctuation they have to deal with. Also, more technical traders or analysts use this range data, together with trends that have been observed to make assess the opportunities around a stock.

Understanding the extremities

Let’s say the price of a stock is ₦50. However, a look at the 52 week range shows a high level of ₦100 and a low price level of ₦10. While this range presents is the volatility of the stock, it will only make so much sense in comparison to something else. At ₦50, it means the stock is currently trading 50% below its 52-week high and 400% above the 52-week low. To compute, find the difference between the current price and the high or low price and then convert into percentages.

The first thing is for you to understand the time you are in. Using our example, it is easy to assume that the price at ₦70 was the most recent price. That is, you can assume that the price was ₦70 and only just recently dropped to ₦50. Whereas in reality, it might have been ₦70 10 months ago and had crashed. It probably only managed to climb ₦50. In other words, its real value might be closer to ₦10 than ₦70. So as opposed to making your decisions based on the range, you might also want to see an actual map of the trend. To do so, click on any stock of your choice on the heat map on Yochaa and you’ll find the daily, weekly, monthly, annual, and 5-year trend map.

Another thing to note is that it doesn’t account for all prices. In all honesty, it will probably be impossible to account for all price movements because of how much it changes. Consequently, the 52-week high/low is based on the daily closing price of the stock. So, it is possible that the stock in our example might have risen to a price as high as ₦85 on one or two days but eventually closed at ₦70 or below and wasn’t recognized.

Finally, it is important to understand how volatility works with the range. As you must already understand, the wider the 52-week range, the greater the volatility. However, it is especially important that you assess this in relative terms. A stock having a range of ₦5 to ₦10 has just ₦5 difference. However, the same N5 difference in a stock with an upper limit of ₦100 means a totally different thing. This is because while the first has had a price swing of 50%, the latter has only moved by 5%.

52-week ranges give context on the trend of a stock as well as its level of volatility but it important to understand the back story of the stock before making any investment decision.

Written by Lawretta Egba.