Interpretation conditional volatility plot

Question

I have plotten the log differences of exchange rates and in the same plot, I show the conditional volatility $\sigma_t^2$. The conditional volatility follows approximately the same path, but is much smaller. Is this correct? Because most figures that I have seen, is that the peaks are approximately the same size.

Thanks in advance!

Answer 1

In my understanding that truly depends on how large the time frame you consider is. Indeed, on one side you have log-returns on the other conditional volatility, which are two different concepts.