Analyzing distribution of returns

It is possible to get a feel for the difference in distribution of the daily percentage changes for a specific stock by plotting that data in a histogram. A trick with generating histograms for data such as daily returns is to select the number of bins to lump values into. The example will use 50 bins, which gives a good feel for the distribution of daily changes across three years of data.

The following shows you the distribution of the daily percentage change for AAPL:

This visualization tells us several things. First, most of the daily movements center around 0.0. Second, there is a small amount of skew to the left, but the data appears relatively symmetric.

We can plot the histograms of the daily percentage change for all the stocks in a single histogram matrix plot. This gives us a means to quickly determine the differences in stock behavior over these three years:

The labels on the axis are a bit squished together, but it's the histogram shape that is important.

From this chart, the difference in the performances of these nine stocks can be seen, particularly, the skewedness (more exceptional values on one side of the mean). We can also see the difference in the overall distribution widths, which gives a quick view of stocks that are more or less volatile.

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