What Stocks are Consistently Volatile?

Volatility in stocks can be seen as both a good and bad thing depending on the type of investor you are. For example, passive investors tend to be adverse to volatility whereas active investors see volatility as an opportunity. 

In the market, certain types of stocks tend to be volatile. For example, stocks in the energy, oil/gas and healthcare/biotech industries are known to be volatile. Whether you are seeking or avoiding volatility, understanding which stocks are consistently volatile will be helpful to you. Read on to learn more.

What Stocks are Consistently Volatile?

A few types of stocks in certain industries are consistently volatile. With volatile stocks, you never know what can happen, so you should be prepared to lose your investment principal if you buy them. 

Energy stocks

Stocks within the energy sector are known to be volatile. Industries operating within this sector include gas, oil and coal, as well as renewable energy sources like solar and wind energies. Energy sector stocks fluctuate because of limited substitutions available for energy sources as well as the continuously fluctuating prices of energy like gas and oil. Furthermore, this industry is heavily affected by political and economic factors that affect the supply and demand. 

Commodities 

Commodities are raw materials or primary agricultural products used in the making of other goods and services. This sector includes materials like gold, silver, gas, grains, coffee and cotton. Because these materials are limited and have inelastic supply and demand, unforeseen changes in the supply and demand can cause large price swings. Furthermore, commodity prices are subject to issues with liquidity, exposure to natural disasters and political influence. 

Financial stocks

Stocks in the financial sector include industries like banking, financial services, insurance companies and brokerages. This sector is known to be volatile as it can be swayed by many external factors. For example, investor emotions, changes in regulations or policies, pessimistic economic conditions, inflation and deflation affect this industry.

Technology stocks

Stocks in the technology sector are also commonly viewed as being volatile. This sector ranges widely with industries including goods like computers, phones, TVs and household appliances plus goods and services for businesses like software, cloud-based computing and logistics systems. This sector is volatile because of the rapid pace of innovation that drives quick changes within these companies as well as the overall market. Also, these industries can be heavily affected by changes in regulations, policies and funding. 

Consumer discretionary 

Consumer discretionary is the classification for goods and services deemed unessential. This sector includes retail, media, luxury goods, automobiles and other industries like those. This sector is volatile as it is directly affected by economic conditions. For example, when economic conditions are good and stable, consumer discretionary industries tend to prosper as people have more disposable income. However when the market faces uncertainty and economic conditions are bad, these industries are the first things people cut back spending on. Overall, this sector is dependent on consumer spending, which is affected by factors like interest rates, inflation and unemployment.

Are Volatile Stocks Good Investments?

Depending on the type of investor you are will answer whether or not volatile stocks are a good investment fo you. People looking to turn around stocks quickly, like a day trader, seek volatility. However, those taking a more passive approach to investing will probably prefer low volatility. Stocks with higher volatility are associated with taking on more risk, which can be more lucrative. However, it will be up to your level of risk tolerance and style of investing to determine whether or not volatile stocks are a good investment.

Can you Make Money from Volatile Stocks?

One of the benefits of investing in stocks with higher volatility is that you have a better opportunity to make a lucrative investment. However, the greater your chances of making a great return, the greater risk you are taking on. This fact includes a higher risk of losing your initial investment. If you are willing to take bigger risks, than you may be able to make money from volatile stocks.

When Should You Sell Volatile Stocks?

It is best practice, when trading volatile stocks, to have a strategy in mind. Your plan should include limits made for yourself as to when you will take a loss on an investment. Furthermore, investors tend to incur steep losses when they get too greedy, so set a limit as to when you plan on selling the stock. 

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