Python

## What will we cover in this tutorial?

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

## 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)

print(data.head())
```

Resulting in this.

```                 High        Low       Open      Close       Volume  Adj Close
Date
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 a 2-hour full video course in 8 parts about Technical Analysis with Python.

If you are serious about learning Python for Finance check out this course.

• Learn Python for Finance with pandas and NumPy.
• 21 hours of video in over 180 lectures.
• “Excellent course for anyone trying to learn to code and invest.” Lorenzo B.

## 12% Investment Solution

Would you like to get 12% in return of your investments?

D. A. Carter promises and shows how his simple investment strategy will deliver that in the book The 12% Solution. The book shows how to test this statement by using backtesting.

Did Carter find a strategy that will consistently beat the market?

Actually, it is not that hard to use Python to validate his calculations. But we can do better than that. If you want to work smarter than traditional investors then continue to read here.

Rune

### View Comments

• darkcorp says:

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.

• Rune says:

Great.

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Rune

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