Trading opportunities in volatile markets

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The stock market has been in extreme turbulence since the COVID-19 wreaked havoc around the world. It has left investors experiencing extreme volatility.  The uncertainty in the air is enough to make you want to pull out and hide in a cave until things return to normal, whatever the normal may look like?

When a stock starts fluctuating in extremities, it can cause harm to long term returns, including an emotional turmoil that investors go through while this happens. 

We can still seek opportunities in adversities and turn the tides in our favour. This is the right time to find stocks that can achieve market-beating returns, but with lower risk. Stocks with low volatility aren’t always easy to spot, but they can be found as long as you have a good understanding of what volatility is and how it can be measured.

Well, this is where your friendly neighbourhood Tickertape steps in. We have created a screen to empower you to seek opportunities easily. Our Limited Variability screen picks low volatile stocks from Nifty 100 universe.

Criteria on which this screen is built

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Definition of Volatility: Annualized standard deviation of daily price change for the 200 most recent trading days 

Stock Selection: Volatility vs Nifty 50 < 10% i.e stock volatility – nifty50 volatility < 10% on top 100 largecap stocks

Stock Universe:  Top 15 stocks are selected based on market cap 

Now that we have set the parameters for low volatile stocks let’s backtest these criteria? 

To test the criteria set above we applied this to, every month since 31st July 2015, and filtered stocks bought and held till next month-end. This screen generated a CAGR of 10.55% vs Nifty 100: 5.35% since 31st July 2015

Test results 

Access our Limited Variability screen now. 

A smart investor knows when to be fearful and never throws caution out of the window. While low-volatility strategies may lag market returns during bull markets, it could compensate during the bear market. 

The purpose of seeking opportunities during instability is to take advantage of market conditions, however, a long term strategy has always proven to be successful. The stock market has always been and will continue to be subjected to turbulence. This screen is a way to change your direction and make hay while the sun is hiding 😉 . It is advisable to always do your own research and set standards that meet your investment objectives. 

Latest posts by Manu Rathi (see all)

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