UNG’s Volatility in Two Charts
April 23 2014 - 7:00AM
ETFDB
The United States Natural Gas Fund (UNG, B) is among the
most heavily-traded ETFs in the world. Tracking front-month NG
futures, UNG has solidified its place as a trader’s delight,
featuring hefty volatility and strong liquidity. As natural gas
remains one of the most unpredictable and turbulent commodities, so
too does UNG, as the ETF has become well-known for its hefty daily
movements [for more ETF news and analysis check out our Daily ETF
Roundup].
Since its debut in early 2007, UNG has traded more than 1,700
sessions. The chart below takes the fund’s daily movement and
distributes them over select ranges of performance. Each column
represents the number of sessions UNG fell within that specific
range:
google.load('visualization', '1', {packages: ['corechart']});
function drawVisualization() { // Create and populate the data
table. var data = google.visualization.arrayToDataTable([ ['Range',
'UNG', ], ['-15% to -12%', 1], ['-12% to -9%', 3], ['-9% to -6%',
26], ['-6% to -3%', 207], ['-3% to 0%', 675], ['0% to 3%', 642],
['3% to 6%', 147], ['6% to 9%', 29], ['9% to 12%', 5], ['12% to
15%', 2], ]); // Create and draw the visualization. new
google.visualization.ColumnChart(document.getElementById('visualization99475')).
draw(data, {title:"Daily Changes of UNG", width:600, height:400,
hAxis: {title: "Daily Change"}} ); }
google.setOnLoadCallback(drawVisualization);
As the chart above displays, UNG tends to lose ground a bit more
often than it claims. Some may be surprised to see that the fund
has moved by an absolute value of 3% to 6% just over 20% of the
time. Also note that the fund has had some truly wild trading days;
its best performance came on 6/14/2012 when it jumped 14.95% and
its worst performance came on 8/20/2007 when it lost 12.36% [see
also Finding a Better Natural Gas ETF: Exploring NAGS].
Dragging out the timeline to monthly returns reveals that UNG is
truly all over the board. The ETF has made it through more than 80
calendar months and has seen its fair share of highs and lows:
google.load('visualization', '1', {packages: ['corechart']});
function drawVisualization() { // Create and populate the data
table. var data = google.visualization.arrayToDataTable([ ['Range',
'UNG', ], ['-15%+', 9], ['-15% to -12%', 10], ['-12% to -9%', 7],
['-9% to -6%', 7], ['-6% to -3%', 8], ['-3% to 0%', 7], ['0% to
3%', 4], ['3% to 6%', 6], ['6% to 9%', 10], ['9% to 12%', 3], ['12%
to 15%', 7], ['15%+', 2], ]); var options = { title:"Monthly
Changes of UNG", width:600, height:400, hAxis: {title: "Monthly
Change"}, colors: ["green"] }; // Create and draw the
visualization. new
google.visualization.ColumnChart(document.getElementById('visualization99479')).
draw(data, options); } google.setOnLoadCallback(drawVisualization);
On a monthly timescale, UNG also tends to lose more than it
gains. This result is not entirely surprising, as NG has been
taking a big hit since the 2008 recession. This chart also helps to
display why UNG is primarily used as a trading instrument rather
than a product to buy and hold over the long term, as it is often
too volatile for most passive investors.
The Bottom Line
Taking a step back and looking at a particular fund with a new
set of eyes is always a healthy exercise. In the case of UNG, we
are reminded why the fund is more useful to active traders and how
it can be a burden to passive investors. The fund’s volatility
should not ward off anyone who is interested, it simply demands
that you do your homework and ensure that you have the time and
patience to keep up with the product.
Follow me on Twitter @JaredCummans.
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Disclosure: No positions at time of writing.
Click here to read the original article on ETFdb.com.
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