Guide On How To Find and Invest in Low-Volatility Stocks


Triston Martin

Feb 12, 2024


Traders consider a security's historical volatility when making an investment decision since this information might assist them in determining the relative risk of a future deal. Many different metrics may be used to quantify volatility in various settings, and every trader has their preferred metrics. To succeed as an investor, having a solid understanding of the notion of volatility and how it is determined is crucial.

A stock is said to have low volatility when its price is reasonably consistent over time. A store with a high degree of volatility naturally carries a higher level of risk, but this risk can go either way. When purchasing a security known for its high level of volatility, an investor faces heightened chances of both success and failure. Because of this, many traders with a high-risk tolerance look to several volatility metrics to assist them in developing their trading strategy.

What Is Volatility?

Every stock is subject to some degree of price swings. The term "high volatility" alludes to significant shifts in value, whereas "low volatility" describes shifts in value that are more gradual and incremental over time. Investors getting close to the age at which they can retire should steer clear of stocks with high volatility because of the possibility of rapidly losing money and the limited time they have to recover from losses. Even though it is possible to make money on volatile stocks, and even though some level of volatility is acceptable so long as the overall returns justify it, the majority of investors would be better off searching for stocks that have a history of consistent positive returns and relatively low levels of volatility. It isn't always simple to identify stocks with low volatility. Still, it is possible to do so as long as you understand volatility and how it may be quantified.

Determining Volatility

The degree of a stock's volatility is not always straightforward to ascertain. Examining the rise and fall of a stock price can be done, but taking that information out of its original context makes it only moderately informative. When analyzing volatility, it is helpful to consider the movement of the entire stock market and the volatility of other stocks operating within the same sector. This will provide your analysis with more context. The term "beta" refers to a measurement that provides investors with an objective understanding of the volatility of a particular company.

Most of the time, a beta statistic will evaluate a company about the S&P 500, which ranks the 500 largest publicly traded corporations in the United States. If you get a score of 1, it indicates that the stock price moves very closely in line with the S&P 500. It is suggested that it is 25% more volatile than the index, given that it has a measure of "1.25" You may get the beta for a company on the website of most online brokerage firms, but you should also seek the beta for the industry.

Examples of Low-Volatility Investments

Suppose you seek companies that experience the least volatility. In that case, you can select them by sector by analyzing the volatility of individual stocks or by investing in funds that specialize in low-volatility investments.

Low-Volatility Sectors

Some markets and businesses are naturally more stable than others, particularly in comparison to the stock market. For example, technology equities tend to be more volatile than utility stocks. Many financial gurus point to the consumer staples sector as an industry that offers both low volatility and high returns. Companies that manufacture necessary goods that are used daily, such as food, beverages, and household goods, are included in this economic sector. The essential nature of the items ensures that their sales and the profitability and stock values of their respective companies remain relatively stable.

Popular Low-Volatility Stocks

On average, a select group of equities has generated positive returns over many years without experiencing significant price swings. A good number of them are well-known enterprises that have established themselves at the forefront of their respective industries over many years of successful operation.

Low-Volatility Funds

If you don't want to put in a lot of effort to identify low-volatility assets, you can still receive good exposure to them through exchange-traded funds (ETFs) and mutual funds. These types of funds invest just in companies classified as low-volatility investments. Low-volatility funds are mutual funds that invest in less volatile equities than the market as a whole. Some low-volatility funds specialize in dividend-paying firms rather than other types of stocks. It is an open question whether the performance of these exchange-traded funds (ETFs) routinely outperforms that of the market as a whole. Despite this, they have the potential to be a highly beneficial component of a diversified investment portfolio, particularly at times when the stock market is highly volatile.

Is High Or Low Volatility Better?

When considering an answer to this question, it is essential to remember that the rate of return you anticipate receiving from low-volatility equities is typically lower because you do not expect to see as many fluctuations in the stock's price. On the other hand, unless you are trading, which means you are quickly buying and selling stocks to earn immediate profits, adopting the mindset of a long-term investor isn't necessarily the worst thing to do.


The influence of price volatility on an investor's portfolio can be mitigated by using hedging strategies, or the investor might opt to embrace price swings and try to profit from them. High-volatility equities are popular among day traders because they provide more opportunities to join and leave the market at significant price swings in a relatively short time. On the other hand, long-term investors who buy and hold for the foreseeable future frequently favour low volatility in exchange for incremental and consistent profits over time. When volatility rises in the stock market, investors become more concerned about the possibility of a market decline.


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