04-May-2022

Stock Returns: Average, Variance, And Standard Deviation

Hello and welcome in this video, we'll, take a look at how to download some stock data from Yahoo Finance and also how to compute some basic statistics for this such as the average returns, the variance of the return and standard deviation of the returns. So let's, take Google, good, L and go to historic prices and let's. Take the prices for the last one year, December 30th of 2013 to December 30th of 2014 and get prizes.

I am choosing daily prices. So these are all the daily prices here you scroll down. And you can download this to a spreadsheet, you can then open this file in Excel. And here is the data and I would also go ahead and save this as Excel file. Instead of comma-separated click, excel workbook. And you can change this name here to something else, stock return statistics or some other suitable name. So let's, take a look at the data here.

So you have here. The dates of the returns, the opening stock price, the highest stock price for this particular date. The lowest stock price. The closing stock. Price and the volume of stocks traded on that day, and the add gesture close. Now, the address would close is accounting for any dividends that were paid by the company or any stock splits and so on. So we just take the adjusted close as the adjusted stock price for Google on any particular day freeze these panes I'll freeze these panes.

So that I can scroll all the way down and still be able to see the headings and the dates. So the next thing to do is to compute returns stock returns, simply our. Today's price divided by yesterday's price, minus 1. So you can also put parentheses here. If you want for clarity, it's, not strictly required.

But if you do this, it will give you the stock returns, you could also represent this as percent if you want so that's, how you compute this, and you can just double-click on this pull handle here to copy this formula. All the way down now on December 30th of 2013, you see a div sign that's, because there is no start price on the previous day provided for us. And we. Could just optionally delete this so for now, or we could just get hold off the previous day's price and compute. The return let's just delete it for now so going to make much of a difference.

The first statistics statistic we want to compute is the average return right? So the average return is simply computed using average function in Excel. And you supplied all the numbers starting from the cell h2 to shift and down arrow.

Let's shift + down arrow press, all of them together in that sequence and. Close the parentheses, and that will give you the average return for Google stock average daily return for Google stock over the last one year and that's about negative point. Zero, zero, four, one percent. So we now compute, the variance of the daily returns, variance of daily returns represents the extent to which the daily returns varied with respect to the average.

So if there is high variance, that means there was a lot of divergence from this average stock price on a daily basis that means on some. Days the stock returns were very high. Some days stock returns were very negative we're, very low, and so on so let's compute that and using the formula, VAR, p, then parenthesis, and you just select all these returns here. So that is a variance, and he can also increase the size here, a little to accommodate more decimal points. And the standard deviation is basically the square root of the variance I will explain to you the difference between the two, you know in a bit so that's. Your standard deviation for the returns you.