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    Calculate the Volatility of Historic Stock Prices with Pandas and Python

    What will we cover in this tutorial?

    We will calculate the volatility of historic stock prices with Python library Pandas.

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    Step 1: Read Historic Stock Prices with Pandas Datareader

    We will use Pandas Datareader to read some historic stock prices. See this tutorial for details.

    import pandas_datareader as pdr
    import datetime as dt
    ticker = "AAPL"
    start = dt.datetime(2019, 1, 1)
    end = dt.datetime(2020, 12, 31)
    data = pdr.get_data_yahoo(ticker, start, end)

    Resulting in this.

                     High        Low       Open      Close       Volume  Adj Close
    2019-01-02  39.712502  38.557499  38.722500  39.480000  148158800.0  38.505024
    2019-01-03  36.430000  35.500000  35.994999  35.547501  365248800.0  34.669640
    2019-01-04  37.137501  35.950001  36.132500  37.064999  234428400.0  36.149662
    2019-01-07  37.207500  36.474998  37.174999  36.982498  219111200.0  36.069202
    2019-01-08  37.955002  37.130001  37.389999  37.687500  164101200.0  36.756794

    Step 2: Calculate the Volatility of an Asset

    Let’s explore the difference between daily simple returns and daily log returns. Shortly explained, the log returns have the advantage that you can add them together, while this is not the case for simple returns. Therefore the log returns are used in most financial analysis.

    To calculate the daily log returns we need the NumPy library. For the purpose here, we will not explore the depths of NumPy, all we need is to apply the log-function on a full column in our DataFrame (see my other FREE course for more details on NumPy).

    import numpy as np
    data['Log returns'] = np.log(data['Close']/data['Close'].shift())

    This creates a column called Log returns with the daily log return of the Close price.

    We need the standard deviation for the volatility of the stock.

    This can be calculated from our Log returns as follows.

    data['Log returns'].std()

    The above gives the daily standard deviation. The volatility is defined as the annualized standard deviation. Using the above formula we can calculate it as follows.

    volatility = data['Log returns'].std()*252**.5

    Notice that square root is the same as **.5, which is the power of 1/2.

    Step 3: Visualize the Volatility of Historic Stock Prices

    This can be visualized with Matplotlib.

    str_vol = str(round(volatility, 4)*100)

    fig, ax = plt.subplots()
    data[‘Log returns’].hist(ax=ax, bins=50, alpha=0.6, color=’b’)
    ax.set_xlabel(“Log return”)
    ax.set_ylabel(“Freq of log return”)
    ax.set_title(“AAPL volatility: ” + str_vol + “%”)

    Resulting in the following output.

    Want to learn more?

    This is part of the course of Master Technical Analysis with pandas.

    In the next lesson you will learn about Simple and Exponential Moving Average with Python and Pandas.

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    2 thoughts on “Calculate the Volatility of Historic Stock Prices with Pandas and Python”

    1. If you face some errors when reading data from Yahoo, try this:

      !pip install –upgrade pandas-datareader
      !pip install –upgrade pandas

      Helped me a lot.


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