Previously, as I started my volatility adventure, I reviewed AMGN’s volatility clusters. I did this before I had my Monte Carlo simulator and the ability to run 1,000’s of “what if” scenarios.
So in keeping with a biotech/pharma theme, I reviewed Johnson & Johnson (JNJ)’s volatility histogram. From the stock chart, JNJ is in a nice uptrend and about to bounce of its trend line (we hope). The volatility simulation shows that JNJ is a winner if you’re a long term holder.
The 90% confidence return for JNJ is 1.9% with roughly a 62% chance of your return being positive over 10,000 observations. From the simulation, its worst daily down day is a -4.6% day. The chances of that happening is 0.04%, or roughly 1 in 2,500. Not too bad!
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