Why Is the Eurozone ETF Seeing a Gradual Fall?

(Continued from Prior Part)

During the past month, the SPDR Euro Stoxx 50 ETF’s (FEZ) mean return was 0.37% and its volatility was 5.1%. This shows that it can fluctuate 5.1% above or below the mean return. The graph below compares FEZ’s mean return and volatility with its top performers.

The mean return-to volatility ratio shows the return earned per unit of total risk on a daily basis for the month. Total SA (TOT) had the highest mean return of 0.41% and volatility of 9.7%. It had the highest mean return-to-volatility ratio of 4.2% compared to the other performers. Société Generale had the lowest mean return-to-volatility ratio of 3.1%. This shows that Total SA outperformed Société Generale during this period.

However, the mean return-to-volatility ratio of FEZ was 7.3%, which was the highest return when compared to its top performers.

Volatility shows the fluctuation in periodic returns from average returns. This is known as the total risk in the portfolio. The mean return shows the average daily return of FEZ.

There are two types of total risk—systematic risk and non-systematic risk. Non-systematic risk can be minimized by diversification, whereas systematic risk cannot be diversified. Systematic risk is measured by its beta, and volatility measures both systematic and non-systematic risk.

In the period from October 1–30, 2015, Société Generale’s non-systematic risk rose. As a result, its total volatility rose to 9.8%, and its mean return was 0.3%. The non-systematic risk rose in the stock because of weak capital market revenue in 3Q15.

Stocks with a weight of ~2%–3% in FEZ, plus their individual returns, include:

• SAP (SAP): 0.83%
• Unilever (UN): -1.1%
• Deutsche Telekom (DTEGY): -3.1%
• Telefonica (TEF): -1.4%
• ING Groep (ING): 1.4%

The individual return refers to the stock’s own return.

Please read How the Eurozone Manufacturing Report Boosted FEZ’s Performance to learn about the Eurozone.

Browse this series on Market Realist:

• Part 1 - Macro Indicators Suggest Mixed Signals for the Eurozone
• Part 2 - FEZ Traded Below Its 100-Day Moving Average on November 10