Momentum VS Volatility. is there a Misconception?

[MrAgi1]

Hey Guys,

I have a question to ask. It seems I am confusing two different things.
My understanding is: Volatility is how much a stock price fluctuates from its mean.
From the picture, which I got from a youtube video

it is said that the stock in red has more volatility than the one in green. I am confused about it?

Ok, let me give my own example to make my question clear.
Example: If stock A is 50usd and over the next 30 days it moves straight up without going down to 250usd and time ends;

Another stock B is also 50usd and over the same 30 days, it moves between a low of 5usd to a high of 99usd. But stock B touch this high and low more than 50 times in the same time period of 30 days.

I know it is not a realistic example, but can someone explain to me in detail which one has higher momentum and volatility?

Because last year TESLA kept moving up and up and it was said in the news that it is highly volatile even though the movement was in only one direction?
Another example is that BTC from 20th Dec to 8th Jan BTC moved large amounts in only one direction and it was reported as an extremely volatile moment?


Thanks in advance for your responses.

 

[narafa]

A complicated and controversial topic. I will tell what I do believe. Volatility of an instrument is how it's recent returns compare to the average returns (Of a specific longer period). There is no such thing as an absolute volatility, it has to be related to time periods.

So if a certain stock average returns over the previous 1 year period was +0.5% (hypothetically), with -3 Std Deviations of (-12%) and +3 Std Deviations of (+8%) and suddenly it starts jumping around up and down in +/- 20% every day, it is considered to have experienced increased volatility.

A steady rise in an instrument price over time can be considered volatile if it's daily movements are higher than it's +2 Std Deviations over let's say the last 1 year.

Fluctuating above & below the average return is meaningless unless you link it to the Std. Deviations. Moreover, a steady rise of 2% a day consistently for an extended period of time will increase volatility but not by a huge factor.

In your post you mentioned the stock fluctuating above/below it's mean (Price), which is not (in my opinion) relevant. The volatility is always a measure of the variance of the recent/expected future returns compared to it's historical average (specifically how it compares now to the historical extremes).

 

[murray t turtle]

Hey Guys,

I have a question to ask. It seems I am confusing two different things.
My understanding is: Volatility is how much a stock price fluctuates from its mean.
From the picture, which I got from a youtube videoView attachment 249126 it is said that the stock in red has more volatility than the one in green. I am confused about it?

Ok, let me give my own example to make my question clear.
Example: If stock A is 50usd and over the next 30 days it moves straight up without going down to 250usd and time ends;

Another stock B is also 50usd and over the same 30 days, it moves between a low of 5usd to a high of 99usd. But stock B touch this high and low more than 50 times in the same time period of 30 days.

I know it is not a realistic example, but can someone explain to me in detail which one has higher momentum and volatility?

Because last year TESLA kept moving up and up and it was said in the news that it is highly volatile even though the movement was in only one direction?

Thanks in advance for your responses.

%%
Assume they are the same price, even though red is lower. But that' OK because stock under $5 have more volatility than over $5.
The green stock has more vol + momentum[price speedometer] than red .
Easier to make money off ETFs like TSLA.
But easier to lose usually\on single stocks like TSLA, because vol is seldom limited to upside like TSLA was in 2020.
NEWS media comments on TSLA,any stock market is almost always wrong; except when they report close price...............................................................................

 

[lindq]

Hey Guys,

I have a question to ask. It seems I am confusing two different things.

Think of a ball bouncing down a flight of stairs. The overall direction - momentum - is down. But it will bounce on each step of stairs - a measure of volatility.

Thus, a longer term trader can be trading momentum, but shorter term is looking for volatility. They aren't mutually exclusive. And some traders will in fact hold a longer position in a security, and trade around that with shorter positions.

 

[murray t turtle]

Think of a ball bouncing down a flight of stairs. The overall direction - momentum - is down. But it will bounce on each step of stairs - a measure of volatility.

Thus, a longer term trader can be trading momentum, but shorter term is looking for volatility. They aren't mutually exclusive. And some traders will in fact hold a longer position in a security, and trade around that with shorter positions.

%%
With the exception of a fade..............................;
most traders ignore the talking snake media +investors may ignore the talking snake media even more/LOL

 

[taowave]

Stock A has very low volatility and overall higher momentum...

Forget the math for now,even though it's pretty simple...

Think about driving a car
Momentum is related to acceleration..Volatility is the route one takes.It it filled with twists,and turns (highvol) or more of a straight line(low vol)..

Keep in mind vol is path dependent..a stock can go straight up or down with equal sized moves,hence little to no deviation from the average move.You could have a big move up with very little volatility.

 

[MrAgi1]

Stock A has very low volatility and overall higher momentum...

Forget the math for now,even though it's pretty simple...

Think about driving a car
Momentum is related to acceleration..Volatility is the route one takes.It it filled with twists,and turns (highvol) or more of a straight line(low vol)..

Keep in mind vol is path dependent..a stock can go straight up or down with equal sized moves,hence little to no deviation from the average move.You could have a big move up with very little volatility.

Thanks, I like the analogy of driving a car. So just to confirm,
Example:
If I only take the date range of [20th Dec 2020 to 8th Jan 2021] into consideration; then Bitcoin has HIGH MOMENTUM(because of an unusually large amount of price move) and LOW VOLATILITY( because it moved only in the upward direction)? Right?

 

[KCalhoun]

Think of a ball bouncing down a flight of stairs. The overall direction - momentum - is down. But it will bounce on each step of stairs - a measure of volatility.

Thus, a longer term trader can be trading momentum, but shorter term is looking for volatility. They aren't mutually exclusive. And some traders will in fact hold a longer position in a security, and trade around that with shorter positions.

Best explanation of momentum vs volatility I've seen.... brilliant analogy...... to extend, height of bounces = daily trading ranges.... kudos

Dating example, date 3 different ladies, how wild they are at night = volatility difference lol

 

[MrAgi1]

Think of a ball bouncing down a flight of stairs. The overall direction - momentum - is down. But it will bounce on each step of stairs - a measure of volatility.

Thus, a longer term trader can be trading momentum, but shorter term is looking for volatility. They aren't mutually exclusive. And some traders will in fact hold a longer position in a security, and trade around that with shorter positions.

Thanks for the brilliant analogy there. Just to be sure I understand your analogy; Assume instead it is a smooth downward sloping inclined plane instead of stairs. The ball would move down smoothly with no bounce. so low volatility and downward momentum, Right?

So If TSLA stock suddenly drops down in a near-perfect smooth straight-line to 50usd from its current 826usd; that is LOW VOL, DOWN MOMENTUM?

 

[sef88]

Volatility is easier to predict since it clusters. Momentum - less so.