Here Comes the Story of (UNG and) the Hurricane

by on June 18, 2014

Each year, hurricane season becomes a focal point for a number of energy traders, as the storms have been well-known to knock out key pipelines and platforms around the country. As such, ETFs like the United States Natural Gas Fund (UNG) continually make headlines as many have pointed (myself included) to the funds as being more volatile during the five month season. But is that actually the case? [for more ETF news and analysis subscribe to our free ETF Daily Roundup].

UNG and Hurricane Season

I set out to show some data displaying how volatile UNG was during this time period each year to help investors get a better grasp on the scenario. But after digging deeper, I wound up with data that contradicted my initial thought (including some previous articles I have written). It turns out, that as a whole, the day-to-day volatility of UNG is not all that heavily impacted by hurricane season.

This chart shows UNG’s absolute average daily movements in each of the full calendar years that the fund has traded. The bar on the left is the average daily change (again, in absolute terms) for all trading days outside of hurricane season, while the bars on the right represent the same thing, but for the time period between June 1st and November 30th for the respective year [see also 25 Ways To Invest In Natural Gas].

It turns out, UNG is not really all that volatile when looking at hurricane season as a whole. In fact, most years see the fund tone down its volatility during this period. The most likely reason for the latter point is summer volumes kick in and the fund trades less often than it does earlier in the year. Typically, UNG is most active in the first three-to-four months of every year, with a notable drop in volume in most summers.

It should be noted that there are may ways to qualify the volatility of a security during a certain time period, and I have picked out just one of them. UNG certainly still sees some hectic trading days surrounding major storms like Sandy and Ophelia over the last few years. But from an overall standpoint, calling the fund more volatile during hurricane season may be too much of a generalization.

The Bottom Line

UNG is one of the most popular ETFs in the world, as traders and speculators alike have made it one of the most actively-traded funds out there. Coveted for its volatility, the assumption that UNG is more volatile during hurricane season is one that should be taken at face value. The fund will see a number of major moves corresponding to major storms, but from an overall standpoint, the daily volatility of the commodity ETF is little different in hurricane season than the off season.

Follow me on Twitter @JaredCummans

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Disclosure: No positions at time of writing.