Comparing the Volatility across Different Assets

 
In the previous article, we showed the steps that everyone can calculate the volatility for particular a particular stock/ETF he or she is interested in. So what’s the general volatility of other assets that we are interested in? In this article, we are going to compare the volatility among four popular assets: equity market, corporate bond, real estate, and gold
 

Popular ETF to Represent Those Assets

Before the invention of ETF, individuals are hard to diversify their portfolio to different asset classes. However, with the increasingly popularity of the ETF, It is easy to get the specific risk exposure you prefer. If you want to get the corporate bond exposure, you can simply buy the corresponding corporate bond ETF just like you buy other stocks. The creation of ETF really helps the individual investors diversify their portfolio without mutual fund managers. Here is the ETF that we are going to use as a practice to measure the volatility for different assets:
Equity Market: SPY
Corporate Bond: LQD
Real Estate: IYR
Gold: GLD
 

Results

As usual, you can use Stock Historical Download or Yahoo Finance to download the historical price to calculate the volatility. The data range we choose is between Jan, 2005 and Jan, 2012. The reason is that because gold ETF GLD was not created until 2005. Different intervals such as 7 years, 5 years, and 3 years are calculated to see the volatility difference among different intervals


As we can see, different asset classes do have different volatility characteristic while the interval chosen to calculate the volatility has small impact in terms of volatility.
It shows that actually real estate (IYR) has the highest volatility, following by gold (GLD), then stock market (SPY). Corporate bond (LQD) has the lowest volatility.  It affirms our general expectation that the risk of bond is lower than stock. On the other hand, the reason why real estate has the highest volatility, which is somewhat contradictory to the traditional view treating real estate investment as a safe investment, might be something to do with the subprime mortgage crisis.

We can also plot the annualized return comparison among those assets


Unlike volatility, the annualized return does fluctuate a lot for different intervals, especially the stock market and real estate. It shows us how difficult it is to profit from timing stock market