Volatility – A measure of ETF risk

Article Excerpt

ETFs come in all shapes and sizes and numerous factors can influence their investment risk. One measure—standard deviation—aims to capture the volatility of an ETF’s price fluctuations. That metric is used to indirectly identify the volatility of the stocks that the fund holds. Standard deviation for the price movements of an ETF can be measured over various time periods—daily, weekly or longer intervals. Here are some examples of the standard deviations for different ETFs. (Higher numbers indicate higher volatility.) Note: the price volatility of ETFs employing leverage and using futures and options mostly falls in the very high category. Price volatility for short-term government bond funds, on the other hand, tends to be very low. Category Volatility* ETF Example Very High Risk 131% ProShares Ultra Vix Short-term Futures High Risk 44% Van Eck Vectors Junior Gold Miners Medium-High Risk 22.1% SPDR S&P Pharmaceuticals Medium Risk 10.3% Vanguard S&P 500 Equity Low Risk 5.9% Powershares 1-30 Laddered Treasury Very Low Risk 1.0% iShares 1-3 Year Treasury Bond * Measured by a 3 year standard deviation of monthly returns. returns. …

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