I had the following comment come in on my forex post from this morning.FXE hasn't been around long enough for accurate beta calculation, but eyeballing its performance superimposed on the S&P chart leads me to believe the beta is between .95 and 1.05. In other words, it is more volatile than many people suppose, and investing more than 2%-3% of your assets could be perilous.
This chart overlays FXE and the S+P 500. There appears to be some similarities in the range but the correlation seems to be low. I might disagree that the beta of FXE is so close to 1.00. In the time the FXE has been around the stock market has been in a very narrow range, narrower than what is normal for stocks.
The second chart shows the Euro* over the last three years and you can see that excluding a couple of short periods the currency has held in a very tight range. Riskless, absolutely not. As volatile as stocks, I have to say no to that as well.
*I just realized that BigCharts has currency charts. This chart is backwards from how the eurusd pair is usually quoted, I could not fund the symbol to chart it correctly. The chart tells you that the dollar is down in the last three years vs. the euro. Put another way the euro is up vs. the dollar.
4 comments:
Yes Roger, but have a look at this chart, which shows the daily high, low, and close of FXE for the last 3 months (the full period it has been trading), superimposed on the closing value of the S&P (solid line). While there may have been little correlation between the Euro and the S&P over the long term, the recent correlation has been high!
http://stockcharts.com/h-sc/ui?s=FXE&p=D&yr=0&mn=3&dy=0&id=p09481888185
Here it is with a URL shortener in case that URL results in a broken link.
http://tinyurl.com/gsady
As I mentioned this has occurred at a time while the S+P have been less volatile than normal.
That thought may turn out to be wrong but the range of equities has been very narrow relative to history.
Again, here is the same information, compared in terms of percentage moves. I believe this supports my contention that during the last 3 months, FXE has had approximately the same volatility as the S&P.
http://stockcharts.com/h-sc/ui?s=FXE&p=D&yr=0&mn=3&dy=0&id=p50024246443
Same, with URL shortener:
http://tinyurl.com/jha2k
not disagreeing with the last three month idea.
I am saying it might be the wrong three months to look at.
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