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Technical Talk

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Most Volatile (risky) ETFs

By Arthur B. Hill - Thu 06-Jul-06 4:59 AM EDT

Volatility is synonymous with risk and it is important to assess risk before jumping into an ETF. Even though diversification can be achieved with industry group and international ETFs, these ETFs can also be the most risky.

I measured risk/volatility as the absolute 5-day percentage change (one week). If an ETF advances from 100 to 105 in 5 days, then the absolute percentage change would be 5%. If an ETF declines from 100 to 95 in 5 days, then the absolute percentage change would also be 5%. Keep in mind that I am looking for the ABSOLUTE percentage change, whether or not it is up or down. I then used a 200-period moving average to smooth the data and the table below shows the results. Comments on the results are below the table.


The Brazil iShares (EWZ) tops the list. The 5-day percentage change is 4.23%, both up and down. This means that investors best have a pretty strong stomach to own these roller coaster shares. There are a number of international ETFs in the top tier as well as some commodity related ETFs. The commodity ETFs had a great run and big runs often give way to higher volatility. This does not mean the run is over, it just means that investors should prepare for a wilder ride. Finally, there are a number of tech ETFs in the top group (Semiconductors and Internet in particular).

Bonds and defensive groups dominate the bottom part of the list. There are a number of healthcare and consumer related ETFs as well as a few dividend plays. These fluctuate around 1% per week and offer a more stable investment. In a general bull market advance, these groups will not go up as much as the technology related groups. However, in a general market decline, they will hold up much better. The bond ETFs are at the bottom and represent the least volatile options (safety).

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