When stepping into the world of investing, there are various concepts that you must familiarize yourself with in order to put your best foot forward and earn as much money as possible. One of the most crucial concepts is stock volatility, and your understanding of this will help you determine whether or not it is worth investing in the most volatile stocks.
In this article, we’ll provide you with a deeper insight into stock volatility, alongside listing some of the most volatile stocks in recent months.
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What are volatile stocks?
Volatility measures how the price of a stock or the overall stock market fluctuates. If a stock is considered volatile, this means that the price tends to fluctuate quite considerably within a small time frame.
How is volatility measured?
There are two kinds of stock volatility: historic volatility (HV) and implied volatility (IV).
Historic volatility is the measurement of how much the price of a stock or asset has changed historically – such as over a period of years. It is calculated by measuring the standard deviation of price changes over a specific period of time.
Implied volatility is based upon how much the price of a stock or asset is expected to change in the future, based on analytics predictions and current market conditions.
This information is presented as a percentage, and the higher the percentage, the more volatile a stock is considered to be.
What causes volatility in the stock market?
There are many different factors that could lead to a stock or asset having high volatility. This includes:
Market conditions. One of the biggest contributing factors to high volatility is the condition of the stock market as a whole. For example, geopolitical events often have a profound impact on the stock market, as this “weighs on economies and financial markets as decision-makers hold off from making major commitments.”
Economic Uncertainty. Economic uncertainty can also cause stocks to become more volatile, as they are influenced by a range of economic factors such as employment rates, inflation and Gross Domestic Product (GDP) growth. Simply put, when finances are tight, investors are less willing to part ways with their money or may sell stocks.
Company/Industry news. Company/Industry news can also impact the volatility of a stock. For example, less than promising annual reports relating to earnings and profits could mean a stock becomes more volatile. In the modern world, negative media attention is also said to be a driving force towards high volatility rates.
The above list is by no means exhaustive but does provide some insight into reasons why a stock may be considered volatile.
What are the most volatile stocks?
As stock volatility is measured based on rapid fluctuation, the most volatile stocks can change from one day to the next. However, the list below contains some of the most volatile stocks based on recent data.
Tesla is often considered to be one of the most volatile stocks on the market. While it is considered to be a leader within the e-vehicle industry, it fell short of its 2 million annual internal targets set by owner Elon Musk. As such, the S&P 500’s Index reported that Tesla has an incredibly high volatility rate of 57.25.
The company’s inclusion in the S&P 500, a report that shares data relating to the top 500 companies in the US, in 2020 was within itself a surprise to many, with “some suggesting that its extreme volatility may have raised potential reputational concerns for the index.”
After a turbulent few years, Meta appears to be on track for significant growth in 2024. For example, in 2022, declines in big tech led to a meta stock crash, during which the company saw a 70% decline in stock. However, a recent report found that META had a fantastic 2023, “having gained 178% in 2023.”
This growth was accelerated by specific company budget cuts and likely the development of other platforms and systems, such as Threads. Developed to be an alternative to Twitter, threads was the “fastest growing app in history” upon its release in July 2023.
For many years, the streaming giant Netflix was considered an excellent investment, reporting year-on-year growth. However, in recent years, the company has struggled to improve its annual turnover. For example, in Q1 2022, Netflix lost 200,000 subscribers – and a further million in Q2. In 2023, after announcing that they were putting restrictions on password sharing, their subscriber count continued to plummet.
Netflix also faces harsh competition from other streaming companies, such as Disney Plus and Amazon Prime. For example, in 2022, Disney had 221 million subscribers, whereas Netflix had 220 million. While this is not necessarily a significant difference. Disney+ is in its infancy when compared to Netflix, which has been operating within the streaming industry for several years. The S&P 500 index rating reported that Netflix has a volatility rate of 36.8.
Much like Meta, Amazon struggled in 2022. However, 2023 was a great year for the ecommerce platform. For example, in Q3, Amazon generated $143 billion in net sales, compared to $127 billion for Q3 in 2022. This, too, made Amazon stock volatile due to its rapid growth when compared to its similarly rapid decline in the previous year. The S&P 500 Index reported that Amazon has a volatility rate of 34.78.
While there are many contributing factors to Amazon’s growth in 2023, this is largely attributed to improved marketing efforts and third-party sellers on the platform.
According to a report from Trading View, Spirit Airlines is another incredibly volatile company, with a volatility rate of a staggering 163.7%. There are again, many potential reasons for this. In recent years, Spirit Airlines has received considerable negative press, meaning that it lost out on a lot of customers despite marketing itself as a low-cost airline. Their Q3 sales for 2023 were down 6.5% from Q3 in 2022, during a time when many travel-based companies were struggling to get back on their feet after the COVID-19 pandemic and travel restrictions.
In recent months, a planned merger between JetBlue and Spirit Airlines caused the stock prices to rise based on the assumption that this merger would accelerate the company’s growth. However, on the 16th of January, a US Judge blocked the $3.8 billion merger, stating that it would harm consumers. This will likely lead to further fluctuation in stock prices.
NVIDIA is considered one of the most volatile stocks due to a combination of factors including its high valuation, the uncertain outlook for the global economy, and the dynamic nature of the tech sector in which it operates. The company’s stock has been significantly impacted by the demand for artificial intelligence (AI), which has been a major driver of growth for NVIDIA’s products, particularly its graphics processing units (GPUs) that are essential for AI applications.
The volatility can also be attributed to the company’s high price-to-earnings (P/E) ratio, which was reported to be over 100, indicating that the stock may be considered overvalued by some investors. This high valuation raises concerns about the sustainability of its stock price growth.
Block Inc has a volatility of 3.11, which is 4.2 times more volatile than the NYSE Composite. This high level of volatility indicates that the stock can experience significant price swings, either up or down, which could present investment opportunities or risks
The company has also been significantly impacted by controversies surrounding its Cash App business. Allegations of inflated customer growth, fake accounts, and dodging revenue regulations have led to investor skepticism and stock price volatility.
Despite reporting solid growth in revenue, gross profit, and adjusted EPS, Block’s net earnings loss has widened, which might concern some investors. However, the company has also performed better than analysts expected, indicating potential for growth.
Energy companies are also considered to be rather volatile investments due to the fact that the market itself is so volatile and subject to rapid and often unexpected changes. However, according to a recent study, one of the more volatile energy companies is Fluence Energy.
Fluence Energy is a company that specialises in energy storage products and services and renewables. According to a recent study published by The Motley Fool, “Its beta coefficient over the last five years is 2.24, indicating that Fluence has been much more volatile than the S&P 500.”
Much like some of the other companies listed, Fiscal performed incredibly well in 2023. According to their website, they recorded “for the fiscal year 2023 $2.2 billion and revenue for the fourth quarter of $673 million, representing an increase of approximately 85% from fiscal year 2022 and an increase of approximately 25% from the third quarter.”
Volatility is a concept that investors must become familiar with in order to invest with confidence. Being aware of which are the most volatile stocks can also help you to make more informed decisions. In some cases, people tend to steer away from volatile stocks in order to mimimze the chances of losing money or the stress associated with investing in a stock that is unpredictable. Many also have concerns about liquidity.
However, others will view volatility as an opportunity within the stock market. For example, they often give the investors a chance to earn higher returns should the following months work out in their favor or to diversify their portfolio. Some investors simply thrive when operating in a high-risk, high-reward environment.
Either way, it is important that you consider your options carefully before investing in any stock or asset. Consider your risk tolerance, stock performance, and more in order to ensure you are making the best possible decision.
You should also ensure that your finger remains on the pulse of the latest market changes or trends. One way in which you can achieve this goal is by investing in market stock analysis tools and software. This means that you’ll have a greater understanding of the market as a whole, improving your chances for success or reducing stress levels quite considerably.
Frequently Asked Questions
What does it mean for a stock to be volatile?
A volatile stock is one whose price fluctuates significantly over a short period of time. The more dramatic the swings, the higher the level of volatility—and potential risk. Volatility can spark different reactions in different types of investors. For instance, long-term investors may not be as affected by short-term volatility, while day traders and options traders might focus intently on these fluctuations
What are the risks and benefits of investing in volatile stocks?
Investing in volatile stocks can be risky due to the potential for significant price drops. However, volatility can also present opportunities for high returns, especially for traders who can accurately predict price movement.
How can I manage the risks associated with investing in volatile stocks?
One way to manage the risks associated with investing in volatile stocks is through diversification, which involves spreading investments across a variety of assets to reduce exposure to any single asset. It’s also important to maintain a long-term perspective and avoid making impulsive decisions based on short-term market fluctuations.