Feb 06, 2010
Options market makers use daily volatility as their measure of how to handle securities with different sensitivities to broad events and market moves. Getting a basic understanding of volatility can be quite useful when thinking about how to weight your holdings. If you expect high returns, then high volatility is fine -- you are expecting to be paid for the risk. A major problem would be owning securities that are very volatile but you do not expect them to offer high returns.
The Emerging Markets Index (EEM) has been more volatile from a daily standard deviation perspective every month for the last few years. There has been no change in this in 2010. Looking at the returns by month as in the first chart shows how this YTD period is hardly an unexpected outcome.
Our layout at ETFreplay.com has been designed to offer visual representation of data. Financial relationships are much easier to understand with a well laid-out chart than a set of numbers in a data table.
To vary the timeframe of the above analysis and gain deeper understanding of this relationship, visit: ETF Charts