August certainly brought a return to market volatility, with the VXX volatility index up over 70% for the last month, and analysts aren't convinced the volatility trend is ending anytime soon.
The VIX index, which measures the implied volatility of S&P 500 index options, increases when market uncertainty takes over and decreases as fear subsides. VIX has been trading near 39 over the last few days.
Jim Strugger from MKM Partners suggested to clients that 40 figures for the VIX will be the norm over the next couple of months, according to Barron's.
MKM's analysts believe "an increase in VIX toward the mid-40s is likely in the near-term and would position into equity market weakness via hedges and long volatility exposure for the possibility of an even higher-magnitude shock."
Director of floor operations at UBS Art Cashin told CNBC that stocks will continue to be "very volatile and shaky," directed by moves in the European markets until at least Obama's jobs speech Thursday night.
Interested in trading this volatility outlook? One way to do so is by looking at a stock's historical correlation to VIX. Correlation, which ranges from -1 to 1, indicates the linear relationship between two variables (in this case, a stock's performance and VIX performance).
Stocks with high positive correlation to VIX tend to do well when volatility, or market uncertainty, rises. If you predict volatility to increase in the near term, look for stocks with a high positive correlation to VIX.
Here's a list of profitable stocks that have shown a positive correlation to the VIX index over the last three months. Will these stocks continue to see gains during extreme volatility? Use this list as a starting point for your own analysis.
(Click here to access free, interactive tools to analyze these ideas.)
1. Telefonos de Mexico
2. White River Capital
3. EV Energy Partners
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Alexander Crawford and Eben Esterhuizen does not own any of the shares mentioned above. Pricing data sourced from Yahoo! Finance. Profitability data sourced form Fidelity.
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