Most of the time, the S&P 500 is seen as a low-volatility index when compared to most individual stocks, small-cap indexes, or indexes from other countries.
However, most investors don't know exactly what volatility to expect from a statistical perspective.
The Risk Distribution Histogram allows us to understand exactly how risk is distributed.
S&P 500 Statistical Risk Distribution
Here are some highlights from what we get from the analysis. Some of this data might actually surprise investors. The data is monthly:
This allows us to understand tail risk and plan ahead. While most times the S&P 500 is in the low volatility zone, extreme events can happen.
What can we learn from this?
This is why it's important not to discard rare high-volatility events, especially when the investor is in need of liquidity.
This risk analysis can be done for any ticker.
However, most investors don't know exactly what volatility to expect from a statistical perspective.
The Risk Distribution Histogram allows us to understand exactly how risk is distributed.
S&P 500 Statistical Risk Distribution
Here are some highlights from what we get from the analysis. Some of this data might actually surprise investors. The data is monthly:
- 27% of all months have volatility under 0.68%
- 80% of all months' volatility was under 4.79%
- 5% of all months had a volatility of over 7%
- If we can call a volatility over 25% a severe crash or "grey" swan, we had 7 of those events
- 3 months with extreme volatility over 30%
This allows us to understand tail risk and plan ahead. While most times the S&P 500 is in the low volatility zone, extreme events can happen.
What can we learn from this?
- Prepare for rare but possible high-volatility events.
- Understand the 80/20 rule. Most months are very low volatility, but 20% of them will have a volatility higher than 5% approximately.
- Avoid overconfidence in stability
- Plan for long-term horizons. High volatility tends to "dissipate" in the long term.
This is why it's important not to discard rare high-volatility events, especially when the investor is in need of liquidity.
This risk analysis can be done for any ticker.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.