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Risk and Reward: Hedge Funds Love These Stocks With Rising Volatility
9/27/2011 3:34:00 PM
(Written by Becca Lipman. List compiled by Eben Esterhuizen, CFA)
In the week ahead worries over Europe's debt remain at the forefront of investor concerns. And traders expect "more stomach-churning volatility" as investors struggle to rearrange their portfolios at the year's third-quarter end, an already particularly rocky time for stocks, reports CNBC.
Bad news in the market has been rampant. Although European debt has taken the lead, it would be folly to forget the impacts or other concerns such as unemployment, weak consumer confidence as well as retail and housing reports.
And it was only last week that world stock markets took a hit "as fears of a double-dip recession gripped world markets and European leaders failed to show they were on a convincing path to stem their sovereign debt crisis."
CNBC reports "Gold tumbled 10 percent and silver crashed, losing 26 percent on the week. The dollar rose more than 2 percent and Treasuries saw record low yields, with the 10-year touching 1.67 percent, the lowest yield in recorded history."
Clearly, the issue of market volatility has not yet been resolved. But such extreme pricing in of bad news begs the question: can any more be priced in? Have the markets reached a point where it has become completely over-saturated with negativity? And if so, what influences can positive news have on an oversold and pessimistic market?
Some analysts are suggesting a bit of good news can go a long way…
"The short term-ism is just blowing people away," said BlackRock vice chairman Robert Doll, noting investors are too worried about the moment-by-moment developments that are rocking markets. "The risk of a European bust is not zero ... I'm going to say there's a one-out-of-three chance that it's unpleasant. Two-out-of three, you should be buying stocks with both hands and feet right now." (via CNBC)
As history tends to repeat itself, analysts are generally optimistic enough on the long term. Thus it's holders of short-term positions who jump at each headline causing much of the volatility in the markets. However these same short-term doomsayers are at the most risk in the event of a market rally.
"I would say the majority of the action we've seen in the last several weeks has been much more in the liquidation mode than the shoring up of positions. If there's any end of quarter action, I would expect it to be more liquidation," said Art Hogan of Lazard Capital Markets. "But there's probably a larger danger of a news reaction to the upside versus the downside."
To summarize, market volatility may be here to stay. At the end of the day, increasing volatility means greater risk to investors. But with great risk comes great potential reward…if you do your homework properly.
To help you explore this idea, we collected data on intraday volatility, and identified a list of the most volatile stocks over the last 30 days (only focusing on stocks with market caps above $300M).
For each stock we list the average daily high/low range over the last 30 days, expressed as a percentage.
To further refine the quality of the list, we collected data on institutional money flows, and identified highly volatile stocks that are being snapped up by institutional investors.
Big money managers appear to think the current volatility presents an opportunity in the names mentioned below--do you agree?
Analyze These Ideas (Tools Will Open In A New Window)