STANDARD VS TIME-TO-HIT VOLATILITY FOR S&P 500 STOCKS

Volatility in financial terms is most commonly measured by the standard deviation of returns, representing the degree to which an asset's price varies around its mean over a given period. This conventional approach captures the average fluctuation in price, providing a statistical measure of risk. On the other hand, some studies have introduce a new concept, the "time-to-hit" volatility, defined as the number of days it takes for the price to achieve a +/- 5% return. This method focuses on the time dimension of volatility, specifically how quickly or slowly an asset reaches a predetermined percentage change in price. While standard deviation-based volatility gives investors insight into how erratic price movements are, the days to X% return method sheds light on the asset's momentum and the typical time frame for significant price movements.

We conducted an analysis encompassing both measures and compared their rankings across all components of the S&P 500. Examining the chart below, we observe that the two metrics yield analogous outcomes for the most and least volatile stocks. However, the data suggests a less uniform correlation for stocks situated within the intermediate volatility range.

Would like to replicate the analysis? Check the resources below:

DataLab: https://lnkd.in/dxxYcHb9

Code available at: https://drive.google.com/drive/folders/1gs6z-qMl7B4f8-Oo8BtwsCM4Fm01L_Ff?usp=sharing

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