Stock prices are well approximated by random walks. This exercise uses the theory of random walks and the values of the Standard and Poors 500 index over several years to illustrate the concept of volatility and the importance of diversification. It also touches upon ways in which stock price variations deviate from random walks, discussing heavy tails.

Read directions and background in

• Stocks, Volatility, and Diversification Exercise

All necessary files are linked at the left.