Volatility versus mean return
In a statistical analysis of the iShares MSCI Japan ETF (EWJ), we’ll know about the volatility and mean return. Volatility shows the fluctuation in periodic returns from average returns. This is known as the total risk in the portfolio. The mean return shows the average daily return of the ETF. Let’s analyze the EWJ last quarter volatility and mean return with compared to its top performers last quarter volatility and mean return.
Compariosn of 3Q15 quarterly mean return and volatility
In 3Q15 the mean quarterly return of the EWJ was -0.17%, and its quarterly volatility was 9.9%, showing that it can fluctuate 9.9% above or below from the mean return. The graph above shows the comparison between the EWJ’s 3Q15 mean return and volatility with its top performers on October 27. Here’s a quick breakdown:
- Japan Airport Terminal’s mean return was -0.43%, and its volatility was 21.5% for 3Q15. If we compare it to the ETF, we can see that it’s more volatile than the ETF, and its mean return is more negative than the ETF’s mean return.
- JSR Corporation’s (JSCPY) mean return was -0.34%, and its volatility was 14.7% for 3Q15. Compared to the ETF, it’s more volatile, with a more negative return, though it is less riskier than Japan Airport Terminal.
- ONO Pharmaceuticals’ mean return was 0.10% and its volatility was 19.2 for 3Q15. Compared to the ETF, it’s more volatile, but its quarterly mean return is higher than the ETF mean return.
Among the three intraday outperformers, the mean-return-to-volatility ratio is highest for ONO Pharmaceuticals in the third quarter. The ratio explains the return earned per unit of total risk on a daily basis for 3Q15.
The stocks with high weight in the ETF include Toyota Motor (TM), Mitsubishi UFJ Financial Group (MTU), Honda Motor (HMC), SoftBank Group (SFTBY) and Sumitomo Mitsui Financial Group (SMFG). These stocks returned -0.50%, -1.3%, -1.1%, -0.7%, and -1.4%, respectively.
In the next part of the series, we’ll analyze how the iShares MSCI Japan ETF, the FEZ ETF, and the SPY ETF performed on October 27.