Volatility Heatmap

This is an Excel generated “Volatility Heatmap” I created in the past and re-enlivened/recalculated. On a scale from green to red, it represents the level of price variability on each given week. The more red it gets, the less predictable or less stable the index price was.

I had a mind to do this for sometime as I thought recent events would likely replicate the “mad” volatility of the 30’s.

Using Dow Jones Industrial Open and Close price data* (rather than Highs and Lows) from 1928 to 2011, the map is the plotted volatility of weekly returns per year in Excel using conditional formatting against defined bins of standard deviation values.

The fact is that the Dow Jones Industrial (DJI) in recent years has shown high levels of volatility but not the same, sustained, drastic “price jumps” it endured in the 1930’s. Likewise, looking at this logarithmic plot of the DJIA, the sharpest and most recurrent “dents” (peaks and troughs) per year, are still those of the 30’s: http://en.wikipedia.org/wiki/File:DJIA_historical_graph_to_jan09_(log).svg

Not to say that current years haven’t been a nightmare for investment banking but the DJI has seen worse times… Hopefully decisions will prop up soon that will address and stabilise US and EU debt and reinstate some market confidence before a 30’s-like rollercoaster.

Some notes from the ^DJI Volatility Heat Map:
• Each column representing a year and each row representing the weeks of the year from 1 to 52 (calculating but not plotting leap year weeks), volatility tends to be higher during the second half of the year.
• The 30’s was cumulatively more volatile than the 40’s, 50’s, 60’s and 70’s put together.
• Volatility clustering shows best either side of extreme volatility figures (red cells).

The companies comprised in the DJIA (Wikipedia):
3M DuPont McDonald’s
Alcoa ExxonMobil Merck
American Express General Electric Microsoft
AT&T Hewlett-Packard Pfizer
Bank of America The Home Depot Procter & Gamble
Boeing Intel Travelers
Caterpillar IBM United Technologies Corp.
Chevron Corporation Johnson & Johnson Verizon Communications
Cisco Systems JPMorgan Chase Wal-Mart
Coca-Cola Kraft Foods Walt Disney

* Data from Yahoo! Finance. Weekly, ^DJI price data in USD from 1928 to 2011 (September).
* Feel free to post a comment for a copy of the excel sheet.

Heat Map: https://alejandraarroyo.files.wordpress.com/2011/09/volatilityheatmap_.png

*This post was first published in Sept 2011.
Please note all this means is that the companies in the ^DJI didn’t endure as much variability as in the 30’s. Not necessarily the same for all markets.


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