The entire financial market perception moves when the stock market moves hills and valleys. 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, financial gains are attached to the risky, high-movement stock. Volatility is 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 (also called a mean price) at which it was earlier traded. This can be thought of as a pendulum. The more the pendulum swings from its mean (original) position it is said to be more volatile. The more the swings are ferocious, the more volatility, and vice versa.
When high volatility is high, the dispersion will be more comprehensive and hence get a wider price range. The opposite goes for a low-volatility stock.
Name of Company
You should first ask yourself if you should 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” of active investors. The upside benefits are apparent and are comparatively high than a simple long position in stock for a longer duration. When travelling in a bus, the question is whether we want a bumpy ride full of hills and valleys or a refined, smooth ride.
By nature, we are loss-averse investors, and even according to the Prospect theory of behavioural finance, we prefer specific gain over potential gain. The derivatives and options market is also one of the ways where we could invest.
Most of the derivatives markets 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 investors, a small corpus of funds can be kept to earn huge profits.
Generally, these stocks are from mid-cap and small-cap segments as these segment stocks exhibit high price movements.
Here is the list of the 10 most volatile stocks for investments.
Sun Pharmaceutical Industries Limited is an India-based multinational pharmaceutical company.
The company manufactures pharmaceutical formulations and active pharmaceutical ingredients (APIs) and sells these products primarily in India and the United States.
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 recovered and posted a positive operating profit. Unfortunately, this recovery stage had given the stock substantial price swings of almost 25% of the base price in the market.
Garden Silk Mills Ltd is one of the leaders in the Indian textile industry, with a speciality in Polyester Filament based textiles and yarns. However, this stock has seen ups and downs of almost 16% of its market price at a much more frequent rate.
Madhucon Projects Limited is one of India’s leading Engineering, Procurement, and Construction (EPC) and Build, Operate, and Transfer (BOT) Contractor; the company has executed wide-ranging projects in infrastructural projects in India.
The volatility of the stocks was 15% of the current market price.
The Company is in the business of manufacturing sugar and distillery products and generating electricity. The Company has a comparatively large sugar plant capacity and electricity generation capacity. The fluctuation in the stock price was almost 15% of the current market price.
The stock had 3 spikes in a year, and the max percentage change in upside movement was nearly 60%.
The Company operates in more than 50 countries across 4 continents. IP-based software solutions and a wide range of IT services have successfully enabled 3i Infotech to streamline customers' business operations globally.
The price volatility was 14% of the base market price. This stock had many peaks and valleys in a year.
This wing of the 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 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 massive opportunity for intraday trading.
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. As a result, the stock had a 37% gain in a single rush and then had a 50% drop.
Magma Fincorp is an Asset Finance Company operating in 22 states across India. It provides various financial solutions for financing vehicles, other agricultural products, and personal finance requirements. The price volatility of the stock was almost 11% of the base market price.
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. However, the price volatility was around 19%. Also, the stock has now seen a mean reversal toward a bear recovery.
All the stocks discussed above exhibit high volatility. Hence they are apt for trading in the brief term, like intraday trade or trading days of 2-3 days. Therefore, these stocks are a top pick for futures and options investors. Investing in these stocks can reap a large chunk of money, but they must be actively monitored. Therefore, run a small technical analysis study for these stocks before investing.
These stocks act as the catalyst for corpus building, as a trigger needs to work with care. Otherwise, the chemical reaction can show disastrous results. The same is the condition with these stocks.
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.
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Research Analyst - Bavadharini KS