5 Low Beta Stocks For Investors Who Hate Market Volatility
Zacks Investment Research | Apr 20, 2017 09:21PM ET
"An investment in knowledge pays the best interest." -- Benjamin Franklin.
The only thing that can fetch rewards from an investment is proper research and analysis. Hence, proper knowledge in the investment field is the key to success.
It is not like that, investing only in risky assets will bring more returns than the market. Many strategies can be built for investing in low risk portfolios that could end up with a lucrative outcome.
Since risky securities give below-average returns when the market is walking on the bearish path, we think building up a portfolio of low beta stocks would be a better way if some other parameters are considered.
What is Beta?
Beta measures the volatility or risk of a particular asset in comparison to the market. In other words, beta measures the extent of a security’s price movement relative to the market. In this article, we are considering the S&P 500 as the market.
If a stock has beta of 1 then the price of the stock will move with the market. So the stock is more volatile than the market if its beta is more than 1. In the same way, the stock is not as volatile as the market if its beta is less than 1.
For example, if the market offers a return of 20%, a stock with beta of 3 will return 60%, which is overwhelming. Similarly, when the market slips 20% the stock will sink 60%, which is devastating.
Screening Criteria:
We have taken beta between 0 and 0.6 as our prime criterion for screening stocks that are less volatile than the market. But this should not be the only factor to be considered while selecting a winning strategy. We need to take into account other parameters that can add value to the portfolio.
Percentage Change in Price in the Last 4 Weeks greater than zero: This ensures that the stocks saw positive price movement over the last one month.
Average 20 Day Volume greater than 50,000: A substantial trading volume ensures that the stocks are easily tradable.
Price greater than or equal to $5: They must all be trading at a minimum of $5 or higher.
Zacks Rank equal to 1: Zacks Rank #1 (Strong Buy) stocks indicate that they will significantly outperform the broader U.S. equity market over the next one to three months.You can see Zacks Investment Research
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