ETF Volatility

[Frank 10]

I ran this scan on the 100+ largest ETF's to check relative daily volatility. Interesting that of these, there are 7 unlevered products that are MORE volatile than the 2x Leveraged ProShares S&P 500 Index.

 

Obviously, the least risky are the short-term fixed-income ETF's.

 

But note that the currency ETF's (like UUP, the dollar index)are just slightly higher volatility than some bond ETF's.

 

[india quant 10]

can u elaborate a bit plz?

thanks

[Frank 10]

yah, I guess that was kind of random start....

 

volatility is the daily standard deviation of returns, expressed as an annual percentage. this is at the very core of how options market makers think about risk. so I thought I would scan the ETF marketplace to get a sense of the range across different kinds of ETFs. ETF's are very interesting products in that they are based on indexes, just like futures -- and they cover a vast array of market segments. ie, there are no futures contract for many of these markets --- but there are liquid ETF's.

 

a quick rule of thumb on 'volatility' -- the annual percentage can be converted to a daily percentage by dividing it by 16. so a 'vol' of 32 implies that price is moving about 2% per day. and a vol of 8 would be 0.50% per day. (the true calculation for conversion is to divide vol by the square root of 252 -- this is because there are generally 252 trading days in a year. sqrt(252) = 15.87, or about 16)