VIX Index: Top 10 Debt-Free Stocks to Protect Your Portfolio From Extreme Volatility

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(List compiled by Eben Esterhuizen, CFA)

Worried about the possibility of extreme market volatility? If you are, you're not alone.

Judging by the VIX index, also known as the "fear gauge", there are plenty of nervous investors. The index measures the implied volatility of S&P 500 index options. 

In other words, it represents one measure of the market's expectation of stock market volatility over the next 30 day period. A higher index value means that more investors are expecting extreme market volatility (i.e. higher levels of investing risk).

Last week, the VIX shot up to 26.2, the highest fear level since March when the tsunami and nuclear disaster occurred in Japan. 

"The stock market is sharply lower, and many investors think the Chicago Board Options Exchange’s Volatility Index (VIX) should be much higher," writes Steve Sears at Barrons.

So, how can you protect your portfolio against a spike higher in the VIX index, i.e. increased market volatility? 

To help you get started, we performed statistical analysis on the price changes of companies with no debt, and identified stocks with a positive correlation to the VIX index. 

Need a reminder of your school statistics courses? Here's a quick summary: 

Correlation measures the tendency of two data sets to vary together. In other words, if a company's price changes have a strong positive correlation to the VIX index, it means that its price will tend to rise if the VIX index rises (i.e. positive correlation = direct relationship)

If, on the other hand, the company's price changes have a negative correlation to the VIX index, it means that its price will tend to fall if the VIX index rises (i.e. negative correlation = inverse relationship).

All of the debt-free companies mentioned below have strong positive correlation to the VIX index, based on price trends over the last quarter. In other words, based on price data from the last 3 months, these companies will tend to rise in price if the VIX index rises.

If you're worried about increased market risk, this list might offer a useful starting point for your next investing idea. But please keep in mind that past performance is no guarantee of future results--just because these stocks have seen gains during times of extreme market volatility, does not mean that they will do so again in the future.

List sorted by correlation to the VIX index, based on price data over the last three months. (Note: The closer a correlation statistic is to 1, the stronger the positive relationship). 

We will also include the projected earnings growth for each company.

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1. Questcor Pharmaceuticals, Inc. (QCOR): Biotechnology Industry. Correlation to the VIX index at 0.598. Wall Street analysts expect the company's earnings to grow by 29.0% over the next five years.

2. Liquidity Services, Inc. (LQDT): Internet Software & Services Industry. Correlation to the VIX index at 0.454. Wall Street analysts expect the company's earnings to grow by 30.0% over the next five years.

3. Digi International Inc. (DGII): Networking & Communication Devices Industry. Correlation to the VIX index at 0.393. Wall Street analysts expect the company's earnings to grow by 18.13% over the next five years.

4. Peet's Coffee & Tea Inc. (PEET): Processed & Packaged Goods Industry. Correlation to the VIX index at 0.377. Wall Street analysts expect the company's earnings to grow by 17.6% over the next five years.

5. SodaStream International Ltd. (SODA): Packaging & Containers Industry. Correlation to the VIX index at 0.371. Wall Street analysts expect the company's earnings to grow by 33.33% over the next five years.

6. Alexion Pharmaceuticals, Inc. (ALXN): Drug Manufacturer. Correlation to the VIX index at 0.363. Wall Street analysts expect the company's earnings to grow by 35.41% over the next five years.

7. Randgold Resources Ltd. (GOLD): Gold Industry. Correlation to the VIX index at 0.361. Wall Street analysts expect the company's earnings to grow by 63.7% over the next five years.

8. Timberland Co. (TBL): Apparel Footwear & Accessories Industry. Correlation to the VIX index at 0.357. Wall Street analysts expect the company's earnings to grow by 14.0% over the next five years.

9. Chipotle Mexican Grill, Inc. (CMG): Restaurants Industry. Correlation to the VIX index at 0.322. Wall Street analysts expect the company's earnings to grow by 23.12% over the next five years.

10. OYO Geospace Corp. (OYOG): Scientific & Technical Instruments Industry. Correlation to the VIX index at 0.316. Wall Street analysts expect the company's earnings to grow by 37.0% over the next five years.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks


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