7 Best Low-Volatility Stocks to Buy

A beta of more than one indicates that a stock has historically moved more than the S&P 500. For example, a stock with a beta of 1.2 could be expected to rise by 1.2% on average if the S&P rises by 1%. On the other hand, a beta of less than one implies a stock that is less reactive to overall market moves. And, finally, a negative beta (which is quite rare) tells investors that a stock tends to move in the opposite direction from the S&P 500. Stock market volatility can pick up when external events create uncertainty. For example, while the major stock indexes typically don’t move by more than 1% in a single day, those indices routinely rose and fell by more than 5% each day during the beginning of the COVID-19 pandemic.

This performance metric corrects the performance of for market beta risk. For example, when a low-volatility strategy has a beta of 0.7 and the market is up by 10% the expected return is 7%. The beauty of minimum volatility strategies is their ability to significantly reduce risk in portfolios while allowing investors to maintain dedicated equity exposure.

1. Investing is a long-haul game, and a well-balanced, diversified portfolio was actually built with periods like this in mind.
2. K-C’s organic sales grew 4% during the June quarter, and the company set all-time records for adjusted EPS and cash flow.
3. There can be no assurance that performance will be enhanced or risk will be reduced for funds that seek to provide exposure to certain quantitative investment characteristics (“factors”).
4. It’s up for debate as to whether these ETFs consistently perform any better than the market as a whole.

Regardless of economic or
environmental factors, people need to buy food and medicine, which is
why companies operating in these sectors often have low betas and
therefore lower volatility. These figures can be difficult to understand, so if you use them, it is important to know what they mean. A fund with a consistent four-year return of 3%, for example, would have a mean, or average, of 3%.

MINIMUM VOLATILITY PORTFOLIO CONSTRUCTION

However, the analyst notes that it hasn’t done as well during bull markets. Still, it offers “downside protection that should continue to breed a more attractive risk/reward profile than the broad global market.” “Stocks listed in emerging markets are usually riskier than their developed-markets counterparts for a variety of reasons,” writes Morningstar analyst Daniel Sotiroff. “But EEMV takes some of the edge off by systematically targeting less risky stocks and combining them in a way that’s designed to cut back on volatility.” It’s also worth noting that even the best ETFs to buy for low volatility carry the risk of underperformance. As the old saying goes, higher risk often can result in higher returns and excluding more dynamic companies might hold your portfolio back in the long run.

For instance, with regards to PE Ratio, the NIFTY 50, NIFTY 100 and NIFTY 200 indices are somewhere from the mark. The NIFTY 200 Momentum 30 index displays an even higher PE ratio of 41 which is understandable as it tends to chase stocks that are on a rising trend. Conversely, a stock with a beta of .9 has historically moved 90% for every 100% move in the underlying index.

What Does Stock Market Volatility Mean?

Volatile stocks may also be more likely to experience sudden price changes due to news events or analyst recommendations. The value of fine wine is less impacted by economic cycles than many other types of investments. This is because people will still buy wine even during economic downturns.

This may have led to a persistent, systematic underweight to less volatile companies. Stock market volatility is a measure of how much the stock market’s overall value fluctuates up and down. Beyond the market as a whole, individual stocks can be considered volatile as well. More specifically, you can calculate volatility by looking at how much an asset’s price varies from its average price. Standard deviation is the statistical measure commonly used to represent volatility.

What is minimum volatility?

And they certainly don’t like being left in the dust when it rebounds sharply off the bottom. Investors need to understand that while these funds may have a place in their risk-management tool kit, they are specialized implements. Less-volatile equity portfolios may have a place, but they rank well below setting aside a rainy-day fund, having an appropriate asset allocation, and going for a walk the next time you’re market facilitation index tempted to tinker with your portfolio. Many day traders like high-volatility stocks since there are more opportunities for large swings to enter and exit over relatively short periods of time. Long-term buy-and-hold investors, however, often prefer low volatility where there are incremental, steady gains over time. In general, when volatility is rising in the stock market, it can signal increased fear of a downturn.

To determine how well a fund is maximizing the return received for its volatility, you can compare the fund to another with a similar investment strategy and similar returns. The fund with the lower standard deviation would be more optimal because it is maximizing the return received for the amount of risk acquired. Modern portfolio theory and volatility are not the only means investors use to analyze the risk caused by many different factors in the market. And things like risk tolerance and investment strategy affect how an investor views his or her exposure to risk.

The latter better describes assets that would better diversify equity risk, like high-quality bonds. The VIX is the CBOE volatility index, a measure of the short-term volatility in the broader market, measured by the implied volatility of 30-day S&P 500 options contracts. Also known as the “fear index,” the VIX can thus be a gauge of market sentiment, with higher values indicating greater volatility and greater fear among investors. Investors often use low risk bonds as a way to diversify their portfolios and reduce volatility. However, the ups and downs of bonds are typically much smaller than the peaks and valleys experienced by the stock market.

Gold-rated iShares Core S&P Total U.S. Stock Market ETF ITOT–a proxy for the broader U.S. market–experienced a maximum drawdown of 35.0%. That said, investors should not expect these funds to bat 1.000, outperforming the market each time it dips. The longer the time frame, https://bigbostrade.com/ the more likely it is you’ll see this relationship hold. Indeed, from November 2011 (the first full month following USMV’s inception) through May 2021, USMV and SPLV had respective downside-capture ratios of 62.8% and 60.8% versus the Morningstar US Market Index.

Kyle Woodley is the Editor-in-Chief of WealthUp, a site dedicated to improving the personal finances and financial literacy of people of all ages. He also writes the weekly The Weekend Tea newsletter, which covers both news and analysis about spending, saving, investing, the economy and more. For instance, if you’ve ever bought insurance for your mobile phone, a computer, or a piece of furniture, it’s possible that Assurant had its hand in that. Assurant’s services also span multifamily and manufactured residential insurance, vehicle protection plans, flood insurance and more.

The VIX

This is because companies that pay dividends tend to be mature and well-established, with strong balance sheets and solid cash flow. These characteristics enable them to weather economic storms better than newer or more speculative companies. These risks often are heightened for investments in emerging/ developing markets or in concentrations of single countries. IShares unlocks opportunity across markets to meet the evolving needs of investors. With more than twenty years of experience, iShares continues to drive progress for the financial industry.

Implied volatility (IV), also known as projected volatility, is one of the most important metrics for options traders. As the name suggests, it allows them to make a determination of just how volatile the market will be going forward. One important point to note is that it shouldn’t be considered science, so it doesn’t provide a forecast of how the market will move in the future.