Volatility and the Market
After writing the stuff on September and the Market, I was looking carefully at other correlations and
found interesting comparisons between stock market prices and volatility
(or Standard Deviation).
Here's what the spreadsheet looks like:
|For example, the crash of '87 shows HUGE volatility in October/87
(see Figure 1) and ...
>But you'd expect that, right?
Yes, I guess so, but I thought I'd play with the Pearson correlation between volatility
and stock prices or stock returns to see whether one could anticipate market changes and ...
And I have a spreadsheet which allows you to download two years worth of daily stock prices and you'd get a chart of Prices vs
Standard Deviation and you could choose which one-month window you'd want to look at and whether you want the correlation between
SD & Prices or between SD & Returns and ...
>A picture is worth a thousand ...
You can move that one month window and choose which correlation you'd like to know and you even get a regression line for that one-month window and ...
>And what am I supposed to do with the spreadsheet?
Click on the picture to download it ... and play!
You can, for example, choose to Buy when the volatility exceeds 1.0% and Sell when it drops below 0.8%
(as in the picture, above).
In the example shown, although GE stock gained 5.8% over the period Sept/04 to Sept/06, your Portfolio would have gained 13.5%
>And you'd recommend that strategy?
Huh? Me? Recommend? I just provide the toys ...