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Market Measures

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Returns and Risk | Stocks vs. ETFs

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

This segment tests the four main stock index ETFs versus individual stocks to learn how they compare to each other in regards to both risk and return. The knowledge you can gain here can help your trading.

Individual stocks are subject to both market risk, industry risk and company specific risk. Stock index ETFs, because of their diversification, are subject almost exclusively to market risk.

A chart of implied volatility (IV) versus implied volatility rank (IVR) on several stocks and the four main stock index Exchange Traded Funds (ETFs) was displayed. The ETFs included the SPY (S&P 500 ETF), QQQ (Nasdaq ETF), IWM (Russell 2000 ETF) and DIA ( Dow Jones ETF).

A chart of the daily returns on individual equities compared to ETFs from March 2015 to present was displayed. The chart showed how the returns of individual compared to ETFs. The results were enlightening.

A table was of average absolute daily return and standard deviation of daily returns (magnitude of movement) on individual stocks and ETFs was displayed. The table showed the difference in daily movements and the variance in returns. You may be surprised.

Watch this segment of “Market Measures” with Tom Sosnoff and Tom Preston for the takeaways and other important information comparing the risks and returns of trading stocks versus trading ETFs including data about the surprising size difference in risk.

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