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Best Stocks for a Volatile Market

The massive selling on Wall Street sent the Dow down more than 500 points on Thursday, marking its steepest point decline since December 2008, while the CBOE Volatility Index the stock market’s gauge of investors’ fears soared 35% yesterday and closed above 31 to its highest level in more than a year or since July 1, 2010. We are definitely observing some wild times on Wall Street amidst new economic worries worldwide. Here is a useful tool to help measure the volatility, and risk, of individual stocks: Beta.

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Many nervous investors who fled stocks turned to options to manage the downside risk in the equity markets that led the VIX to an intraday high level of 32.07 for the first time since March 16th, levels not seen since the Japan’s earthquake and tsunami, and ended up 35% yesterday, its biggest daily percentage increase since February 27th, 2007 when it rose 64.2%. Anxiety had been brewing since July when VIX climbed over 52% and resulted in the biggest monthly volatility increase since September 2008, at the height of the financial crisis.

With eurozone debt fears mounting, and global economic growth concerns, investors may want to seek measures to calculate the risk associated with the prices of their individual stocks. A good financial ratio to use is Beta.

A stock's Beta measures the stock’s price volatility in relation to the overall market. The whole market, which for this purpose is considered the S&P 500 and is assigned a Beta of 1. Any individual stock with a Beta higher than 1 has greater price volatility than the rest of the market and tends to be more risky. While a Beta below 1 is less volatile.

Just because there is more risk, does not guarantee more reward. The average YTD return for the top quintile of S&P stocks with the highest betas is -12.84% while the average YTD return for the bottom quintile with the lowest betas is 0.7%. In down markets, investors turn to low beta stocks for safety.

10 members of the S&P 500 with the highest Betas (per ThomsonReuters):


The data shows that the stocks carrying the highest Betas consist mostly of financial and technology stocks. For example, Genworth Financial is one of the top 10 stocks posting greater price volatility amongst the S&P 500 components with a Beta value of 1.97, implying that the stock is 97% more volatile than the S&P 500. Genworth is also the second worst performer in the S&P year to date as it has declined 46.6%, while Janus Capital is the sixth worst stock for the year so far down 42.3% and ranks as the third stock with the highest Beta of 2.02. In addition, Monster Worldwide is currently the worst stock amongst the S&P 500 year to date, down 57.9% and it is also made the top 10 list of the S&P’s highest betas. Values are based as of Thursday’s closing levels.

10 members of the S&P 500 with the lowest Betas (per ThomsonReuters):

The least volatile stocks, those with a Beta less than 1, consist predominantly of consumer staples and pharmaceutical stocks. Kimberly-Clark , the Consumer Goods maker of Huggies, Pull-Ups, Kleenex, and various health care products worldwide is the stock in the S&P 500 with the lowest Beta 0.41, implying that Kimberly-Clark’s stock price is 59% less volatile than the S&P.

The candy confectionery Hershey is also amongst the S&P’s stocks with Beta values lower than 1, and is the tenth best performer in the index year to date, gaining 16.7% for the year. A large part of this gain is due to strong first and second quarter results as the company reported higher than expected 2Q profits of $130 million or 56 cents a share on the last trading week of July and raised expectations for the full year.

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Symbol
Price
 
Change
%Change
DJIA
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S&P 500
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VIX
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GNW
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HSY
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JNS
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1767
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MWW
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AZO
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CPB
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WMT
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AKS
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JDSU
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CLX
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