Some of the biggest trading opportunities in the market come from the most volatile stocks in the market. These stocks can also be dangerous to trade, creating a high-risk/high-reward scenario.
Volatility can be difficult to predict, but beta is one metric traders use to identify stocks that are most prone to volatility.
Beta is simply a measure of the relative volatility of a stock. Beta is calculated in relation to a benchmark, such as the S&P 500 for U.S. stocks. A beta of 1.0 means that a stock has historically demonstrated volatility in line with its benchmark. A beta greater than 1.0 suggests the stock is more volatile than the benchmark, and a beta less than 1.0 suggests the stock is less volatile than the benchmark.
For example, a U.S. stock with a beta of 1.5 has historically been 50% more volatile than the S&P 500. Typically, the stocks with the highest betas tend to be smaller-cap stocks, while large-cap stocks have lower betas.
8 High-Beta Stocks
Here’s a look at the eight S&P 500 stocks with the highest betas, according to Finviz.
- Advanced Micro Devices, Inc. AMD, 3.09 beta.
- United Rentals, Inc. URI, 2.71 beta.
- Freeport-McMoRan Inc FCX, 2.51 beta.
- Devon Energy Corp DVN, 2.38 beta.
- Marathon Oil Corporation MRO, 2.31 beta.
- SVB Financial Group SIVB, 2.19 beta.
- IPG Photonics Corporation IPGP, 2.17 beta.
- Navient Corp NAVI, 2.14 beta.
Several of these high-beta stocks have performed extremely well in 2019, including a 112% gain from AMD. However, these large positive returns from high-beta stocks occur much more often during periods of strong overall market returns, and traders can expect many of these same high-beta stocks to be among the worst performers during the next market downturn.
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