Dealing with Volatile Stocks

When the stock market goes hills and valleys, the entire perception regarding the financial market alters and shifts. The ups and downs, when happening frequently, the overestimation of downside risk becomes recurring.

This downside risk of losing anything significant leaves investors, especially the new ones, with enough fear to keep away from stocks. However, an aspect regarding high movement stocks, also known as volatile stocks, is that they come with major financial gains.

In this post, let’s find out more about Volatility and how cautious should you be when Investing in such stocks.

Defining Volatility

Put simply; volatility is a statistical measure that assesses the returns’ range for a specific market index or stock. It gauges the deviation with a standard or variance deviation between returns. The volatility of a stock is equal to the amount that certain stock will be separating from the original price whereat it was being traded earlier.

This can be considered as a pendulum. The more the pendulum moves from its original position, the more it is volatile and vice versa. With high volatility, the dispersal will be broader; hence, there will be a broader price range.

As far as the low volatility is concerned, the situation will be completely the opposite. One of the best aspects of volatile stocks is that volatility can be calculated; thus, they can be strategically acted upon to maximize profits.

For active investors, volatility is more of a friend than a foe. The upside advantages are not just obvious but comparatively higher in comparison to a long position in a stock.

Identifying a Volatile Stock

The most volatile stocks can easily be identified by the Beta index. This index considers the effect that stock market fluctuations create on a certain share price and compares it with the benchmark index’s changes.

Shares that have a beta value of 1 are regarded as a relatively safer investment, considering that the fluctuations in the market are proportional to changes that big companies reflect. On the other hand, a share with the beta value that is less than 1 means that it is stable security.

Keeping in mind that more than 1 beta signifies extensive fluctuations with market changes; it is considered as a risky investment. This way, if stocks have beta values that are higher than 1, you can take them as high volatility stocks.

Also, even minor changes in the indicators of stock market impact the volatility rates. In the current economic condition, any sign that leads to changes can create uncertainty in terms of the company’s performance. Therefore, this creates massive demands in the purchase and/or sale of assets in the market, leading to uncertain stock market volatility.

Advantages of High Volatile Stocks

• High returns
• Appropriate for all investment objectives and goals
• Lower costs
• Market value fall
• Lesser market demand

Disadvantages

• High risk
• No dividend payouts
• Trapped value
• Sectoral downtrends

Most Volatile Stocks in India

Cipla

Established in 1935, Cipla Limited is a multinational pharmaceutical company, which is based in India. Primarily, this firm develops medicines for depression, weight control, diabetes, arthritis, cardiovascular diseases, respiratory issues and other medical conditions.

Currently, the Cipla stock is priced at ₹790.50. With no major stock weakness whatsoever, Cipla stock boasts of a variety of strengthening factors as well.

Reliance

Founded in 1973 in Mumbai, Reliance Industries Limited is a multinational conglomerate that has a variety of businesses across India. Reliance is majorly operating in telecommunications, retail, natural resources, textiles, petrochemicals and energy.

The Reliance stock is running at a price of ₹1,992.45. In terms of strength and weakness, this company holds both of them. While its MFs decreased the shareholding in the last quarter, the company has been decreasing its debt considerably.

ICICI Bank

Headquartered in Mumbai, ICICI Bank was founded in 1994. This one is a multinational bank that deals in a variety of banking and financial services. With its registered office established in Vadodara, the branches of ICICI are available in every nook and corner of India.

As far as stock pricing is concerned, currently, this company is running at ₹525.35. Sure, there are threats and weaknesses with this company, but the list of strengths and opportunities are equally high.

In a Nutshell

Investors who have a high-risk appetite and a cautious eye that can identify the high stocks should continue with their decision of investing in volatile stocks. This means that before continuing with the decision of investing in the market, you must know how stock market fluctuations can be read as they impact stocks massively.

Along with that, experts also recommend developing a long-term vision. With a comprehensive plan in hand, returns will be manifold. However, if you think stocks could be too much to handle, especially if you don't possess any knowledge regarding them, investing in Mutual Funds will be a much better idea. Being a popular investment option, Mutual Funds offer a variety of advantages. Irrespective of your stance in the market, investing in mutual funds will always be a fruitful decision.

*List of best mutual funds SIP's having Net Assets/ AUM more than 200 Crore in Equity Category of mutual funds ordered based on 5 year calendar year returns.