When the stock market moves hills and valleys, the entire financial market perception moves.
The ups and downs when happening very frequently, we overestimate downside risk. This downside risk of loss builds enough fear to stay away from the stock.
But, not to deny there are financial gains attached to risky high movement stock.
Let’s understand and have a close look.
What is Volatility?
Volatility is simply a statistical measure that measures the range of returns for a given stock or market index.
It measures this deviation through a variance or standard deviation between returns.
A stock’s volatility is equal to the amount that particular stock will separate from the original price (which is also called a mean price) at which it was earlier traded. This can be thought of a pendulum.
The more the pendulum swings from its mean (original) position it is said to be more volatile. More the swings are ferocious, more is the volatility and vice versa.
When volatility is high, the dispersion will be wider and hence we get a wider price range. The opposite goes for a low volatility stock.
And thus the basic logic of trading and investing goes true: “the higher the risk, the better the returns will be”.
Should we invest in Volatile Stocks?
The best part of volatile stocks is that volatility can be measured and hence can be acted upon strategically to earn profits.
“Volatility is the friend” for active investors. The upside benefits are obvious and are comparatively high than a simple long position in a stock for a longer duration.
The actual question is when we are traveling in a bus, whether we want a bumpy ride full of hills and valleys or we want to straight smooth ride.
By nature, we are loss averse investors and even according to Prospect theory of behavioral finance we prefer certain gain over probable gain.
The derivatives and options market is also one of the ways where we could invest. In fact, most of the derivatives market heavily make money on volatility.
Having said about loss aversion, if we could time the market as the information available to us plenty and be an active investor, a small corpus of funds can be kept to earn huge profits.
Generally, these stocks are from mid-cap and small-cap segment as these segment stocks exhibit high price movements.
Here is the list of 10 most volatile stocks for investments
1. Sun Pharma
Sun Pharma stock
Sun Pharmaceutical Industries Limited is an India based multinational pharmaceutical company. The company manufactures pharmaceutical formulations and active pharmaceutical ingredients (APIs) and also sells these products primarily in India and the United States.
It has recently seen a price swing of the price of ₹680 to ₹400. The fall was due to some US non-approval of drugs and governance issue. This stock had also climbed ₹680 in a span of 3 months.
2. Suzlon Energy Ltd.
Suzlon Energy stock
Suzlon Energy Ltd. is a wind turbine supplier based in Pune. This stock was once one of the picks by Rakesh Jhunjhunwala. Which was later discarded due to continuous losses the company posted on its books. The company is recovering and has recently posted a positive operating profit.
This recovering stage has given the stock huge price swings of almost 25% of the base price in the market.
3. Garden Silk Mills
Garden Silk Mills stock
Garden Silk Mills Ltd is one of the leaders in the Indian textile industry, with a specialty in Polyester Filament based textiles and yarns.
This stock has seen ups and downs of almost 16% of its current market price at a much frequent rate. The company has comparatively a small market capitalization of almost ₹90 crores.
4. Madhucon Projects Limited
Madhucon Projects stock
Madhucon Projects Limited is one of India’s leading Engineering, Procurement and Construction (EPC) and Build, Operate and Transfer (BOT) Contractor, the company have executed wide-ranging projects in infrastructural projects in India.
The volatility of the stocks is 15% of the current market price.
5. KM Sugar Mills
KM Sugar Mills stock
The Company is into the business of manufacturing of sugar, distillery products and also in the generation of electricity. The Company has comparatively large sugar plant capacity and electricity generation capacity.
The fluctuation for the stock price was almost 15% of the current market price. The stock had 3 spikes in a year and max percentage change in upside movement was almost around 60%.
6. 3i Infotech Ltd
The Company operates in more than 50 countries across 4 continents. IP based software solutions and a wide range of IT services have enabled 3i Infotech to successfully streamlined business operations of customers globally.
The price volatility is 14% of the base market price. This stock had many peaks and valleys in a year.
7. GVK Power & Infrastructures Ltd.
This wing of GVK group deals with power and infrastructure projects throughout India. The power sector performance in this current year has been a prime reason for the stock volatility.
The company has a high volume of trade of getting executed due to the strength and capabilities of the company proven historically.
The price volatility of the stock has been 13% of the base market price. The long term effect on the stock price is a fall from the FY 18 ending price. But, there are plenty of pockets where the stock price rose and dropped, thus providing a huge opportunity for intraday trading.
8. Jubilant Industries
Jubilant Industries Ltd. has a business in the area of Agricultural and Performance Polymers business. This company is under the parent Jubilant Bhartia group.
The price volatility of the stock was 13% of the base market price. The stock had a 37% gain in a single rush and then had a 50% drop.
9. Magma Fincorp Ltd.
Magma Fincorp stock
Magma Fincorp is an Asset Finance Company operating in 22 states across India. It provides various financial solutions for financing vehicles and other agricultural related products and personal finance requirement.
The price volatility of the stock was almost 11% of the base market price. The 52 weeks high for this stock was ₹193. Whereas 52 weeks low was less than 50% of the high, ₹81. The stock showed a bull sign at the start of the financial year and then showed a mean reversal for bear case.
10. Take Solutions Limited
Take Solutions stock
This is a management consulting company with expertise in engineering technology services in life science and supply chain. Take solution stock trades in good volume indicating acceptability by the market. The price volatility is around 19%.
The stock had a 52 week high of ₹308 and then it followed a bearish trend with small upsides in the way. Also, the stock has now seen a mean reversal towards bear recovery.
Conclusion
All the stocks discussed above exhibit high volatility, hence they are apt for trading in the very short term like intraday trade or trading days of 2-3 days.
These stocks are a top pick for futures and options investors.
Investing in these stocks can reap a large chunk of money but they have to be actively monitored. I would recommend a small technical analysis study for these stocks before investing.
These stocks act as the catalyst to corpus building, as a catalyst needs to act with care, otherwise, the chemical reaction can show disastrous results. The same is the condition with these stocks.
Happy Investing!
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.
Just like people, stock market sectors seem to have their own personalities, with some sectors exhibiting much more volatility than others. Some sectors bounce around over the short term, with prices fluctuating rapidly up and down like a yo-yo. Other sectors are relatively docile and move more slowly, with small changes in prices at a steady pace over long periods of time. In this article, we'll discuss the eight stock market sectors representing the industries that have shown the most volatility over a sustained period of time.
- Some securities markets are more volatile than others, exhibiting large price swings in either direction over a period of time.
- Volatility in the market sectors has many causes, including investor emotions, depressed economic conditions, inflation, deflation, and bankruptcies of major industries.
- Standard deviation is a mathematical calculation used to measure an investment's volatility.
- The sector with the most volatility in the 2010s (the period between Dec. 31, 2009 and Dec. 31, 2019) was the energy sector, which was impacted by the wide fluctuations in oil prices.
Volatility may be caused by a variety of factors—among them are trader emotions like fear and panic. Sometimes referred to as "noise trader risk," this is the risk associated with trend-following traders who succumb to their emotions, causing massive sell-offs or buying sprees. In a jittery, uncertain market with nervous investors, major news events, both positive and negative, can cause big price moves, either down or up.
Wars, revolutions, famines, droughts, strikes, political unrest, recessions, depressions, inflation, deflation, bankruptcies of major industries, and fluctuations in supply and demand can all cause stock prices to drop precipitously.
Some big hedge funds and private equity firms, with excessive debt incurred due to financing stock market investments, have been forced to sell assets in a declining market to pay off margin calls. These large-lot sales also cause big swings in stock prices.
According to research from S&P Global, the most volatile market sectors during the 2010s (the period between Dec. 31, 2009 and Dec. 31, 2019) were those that felt the most impact from rapid changes in oil prices. Here we list in descending order the top 8 sectors with the highest standard deviations.
Standard deviation is a calculation applied to the annual rate of return of an investment and measures the investment's volatility.
Industries in this sector include oil, gas, coal, and renewable energy technologies such as biomass, geothermal, hydrogen, hydro-electric power, ocean energy, solar, and wind energies. During the 2010s, this sector had the highest standard deviation of 20.3% based on returns from the Energy Select Sector Index (XLE).
This sector saw peak volatility in oil prices during the decade with the spot price for crude oil plummeting from $113.93 per barrel on April 29, 2011, to $88.19 on Sept. 12, 2011.
Coming in with the second-highest standard deviation of 18.6% for the decade is the commodities sector. Commodities are a range of physical goods including natural resources, precious metals, and agricultural goods. If you were to invest in this sector through a commodities exchange-traded fund (ETF), your holdings might include exposure to such products as gold, silver, oil, gas, grains, or beef.
Banks, brokerage firms, financial services, insurance companies, credit card issuers, financial planners, securities exchanges, and commodity exchanges form the bulk of this sector. This sector experienced tremendous volatility during the 2007-2008 financial crisis and the Great Recession that followed. For the 2010s, the financial sector's standard deviation came in third highest at 16.8%.
The technology sector ranked fourth in S&P Global's list of sectors with the most volatility, coming in with a standard deviation of 14.8%. The technology sector includes a wide range of goods and services. On the consumer side, it includes goods like personal computers, mobile phones, televisions, and household appliances. For businesses, the sector provides hardware, enterprise software, cloud-based computing, and logistics systems. Well-known companies in this sector include Apple, Amazon, Google, and Microsoft.
The consumer discretionary sector came in close behind the technology sector with a standard deviation of 14.6%. Included within this sector are retailing, media, consumer services, consumer durables, luxury goods, apparel, automobiles, and auto parts. Additional industries in the consumer discretionary sector include hotels, restaurants, and leisure.
The communication services sector ranks next with a standard deviation of 14.1% in the 2010s. The major companies in this sector include phone services, wireless communications services, cable providers, data services, Internet services, equipment manufacturers, media, and entertainment. Companies in the Communication Services Select Sector Index (XLC) include Meta (META), formerly Facebook; Alphabet (GOOG); Netflix (NFLX); The Walt Disney Company (DIS); and AT&T (T).
During the 2010s, this sector experienced volatility of 12.4% based on returns from the Health Care Select Sector Index. This broad sector includes hospitals, physicians, dentists, medical equipment, supply manufacturers, and vendors. Investors in the health care sector might invest in a variety of health care companies, including pharmaceutical and biotech companies, health insurance companies, or pharmacy benefit managers (PBMs).
Last on our list is the utilities sector, which experienced a standard deviation of 11.8% in the 2010s. Companies in this sector provide public services such as water, sewage services, electricity, dams, and natural gas. Utilities are generally considered a less volatile sector compared to the others on this list. The companies in this sector are heavily regulated and generally provide investors with dividends. Long-term investors will purchase utility stocks for their overall stability and income stream.
The stock market typically moves upward over time in small increments. Any deviation in the price of a stock from this expected pattern, either up or down, is the volatility factor. Volatility often frightens investors. The prudent investor prefers a stable, predictable market in which stock prices move as expected and volatility is at a minimum.