UPSIDE AND DOWNSIDE INVESTMENT COMPARISONS

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The Volatility Map compares stocks or ETFs that have differing amounts of forecasted impending price uncertainty.

Uncertainty along the diagonal increases as both upside and downside increase equally on its path to the upper right corner.

Whether the uncertainty is risk or opportunity (for a buyer) may depend more on its up-to-down balance than its overall size. Hence one of the great weaknesses of investment theories that simply accept uncertainty as risk, like MPT.

This tradeoff plot is useful to quickly identify items of most interest in a group. The positioning of the stocks in the plot tell a lot about how investors are valuing the group from the scatter and alignment of the group's members. Those with the lowest downside price forecasts suggest a high degree of market-maker confidence. Those groups with large proportions of their population above the diagonal suggest dangerously fully-priced conditions in the view of market professionals.

Aberrations may occur, particularly at extremes, due to data circumstances peculiar to a company's situation. It usually is best then to eliminate the stock from consideration of any action until a better understanding is achieved from other sources. Watch out for "distant foul balls" when viewing the map as a baseball diamond.

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