FEZ versus its top performers
In the last month, the SPDR Euro Stoxx 50 ETF’s (FEZ) mean return was 0.37%. Its volatility was 5.1%, which shows that it can fluctuate 5.1% above or below the mean return. The graph below shows a comparison of FEZ’s mean return and volatility with its top performers.
Axa had the highest mean return of 0.56%. Anheuser-Busch (AHBIF) had the highest mean-return-to-volatility ratio of 6.7% compared to FEZ’s other performers. L’Oréal had the lowest mean-return-to-volatility ratio of 3.1%. Thus, Anheuser-Busch Inbev outperformed L’Oréal. The ratio shows the return earned per unit of total risk on a daily basis for the month.
However, the mean-return-to-volatility ratio of FEZ was 7.3%, which was the highest return as compared to its top performers.
L’Oréal volatility rose
Volatility shows the fluctuation in periodic returns from average returns. It is known as the total risk in the portfolio. The mean return shows the average daily return of the ETF.
The total risk includes two types of risk. One is systematic risk and the other is non-systematic risk. Non-systematic risk can be minimized by diversification, whereas systematic risk cannot be diversified. Systematic risk is measured by its beta. The volatility measures both systematic and non-systematic risk.
L’Oréal’s non-systematic risk rose, and as a result, its total volatility rose to 9% and the mean return was at 0.28%. Non-systematic risk increased in the stock because of the downgrade rating by HSBC (HSBC) and Societe Generale in the month of October due to expectations of negative earnings.
The stocks with a weight of ~2%-3% in the ETF include SAP (SAP), Unilever (UN), Deutsche Telekom (DTEGY), Telefonica (TEF), and ING Groep (ING). These stocks provided an individual return of 0.95%, 1.4%, 1.2%, 0.7%, and 0.4%, respectively, on November 11.
To learn more, read How the ECB Statement Affects the World’s Economy.