What are the most volatile stocks on the market today? You might be surprised. The stocks that have exhibited the highest volatility in recent months won't necessarily be the ones with the most volatility going forward. In this article, we'll define exactly what stock market volatility is, identify the types of stocks with especially high volatility in 2024, and discuss whether or not volatile stocks are right for you.
Overview
Understanding stock market volatility
All stocks move up and down over time. Stock volatility refers to how much they rise or fall within a specified period. Generally speaking, the more volatile a stock is, the riskier it is. However, that's not always the case.
Stock Market Volatility
There are several ways to measure stock volatility. Below are three of the most common methods used:
- Beta. This measures the volatility of a given stock or group of stocks compared to the overall stock market (usually represented by the S&P 500). It's calculated by dividing the covariance (how much two data points vary together) of the return on an individual stock or group of stocks and the return over the overall market by the variance of the return of the overall market. Many financial websites provide individual stocks' beta coefficients, so you don't have to crunch the numbers yourself. A beta coefficient of more than 1.0 indicates that a stock tends to be more volatile than the overall market, while a coefficient of less than 1.0 indicates that the stock tends to be less volatile than the overall market.
- Implied volatility. This measures how much the market expects that a stock will change over a period of time. It is derived from options prices using a complicated mathematical formula called the Black-Scholes model. Stocks with higher implied volatility are more volatile than those with lower implied volatility.
- Standard deviation. This measures how much a stock varies from its average or mean value over a period of time. It's calculated by obtaining the square root of the sum of the stock's variance from its average divided by the number of data points. The higher the standard deviation, the more volatile the stock.
Stock volatility can be caused by multiple factors. Some of the most important ones include investors' emotions, geopolitical events, macroeconomic trends, and issues affecting individual businesses.
Five types
Five types of high-volatility stocks
Certain stock market sectors can exhibit higher levels of volatility than others. However, the sectors that are highly volatile during one period could rank among the less volatile ones during another period.
State Street (STT 0.23%) Global Advisors, which operates several exchange-traded funds (ETFs), including the SPDR S&P 500 ETF Trust (SPY 0.09%), published the volatility of each S&P 500 sector in June 2024. Below is a list of the five highest-volatility stock sectors based on the company's volatility composite score.
1. Information technology
Information technology is a sector that is understandably volatile. Tech stocks can sometimes be boom or bust.
A technology boom was launched in 2023 and early 2024, with the surging interest in artificial intelligence (AI) serving as a key catalyst for the overall stock market gains. However, when tech stocks move significantly higher than the S&P 500, it makes them more volatile.
Nvidia (NVDA 0.72%) stands out as a great example of this volatility. The stock skyrocketed earlier in 2024, along with the demand for its graphics chips. It has experienced some steep sell-offs as well in the second half of the year. Nvidia's five-year beta is 1.67, indicating much greater volatility than the overall market.
2. Industrials
The industrials sector includes companies that manufacture, process, and distribute products. Industrial stocks tend to be cyclical. In other words, their performance is usually closely linked to the overall economy.
Economic uncertainty this year has contributed to the volatility in the industrials sector. However, if concerns about a potential recession wane, the sector's volatility should decline.
Boeing (BA 3.26%) is an industrials stock that has been especially volatile. Shares of the giant aerospace and defense company have plunged in 2024 as revenue sank and losses mounted. Boeing continues to deal with the aftermath of the grounding of its 737 MAX aircraft earlier this year. The stock's five-year beta is 1.58.
3. Utilities
Utility stocks are usually viewed as stable investments with lower risk levels. They include the stocks of companies that provide electricity, natural gas, sewage, and water to businesses and homes.
These stocks tend to be less volatile. The demand for their services typically remains relatively steady. Many utilities have no or minimal competition. That makes them attractive alternatives for investors to buy and hold over the long term.
Right now, though, the utilities sector ranks as one of the most volatile sectors within the S&P 500, according to State Street. However, it's a good kind of volatility. Many utilities stocks have risen on the anticipation that the Federal Reserve will cut interest rates. Utilities companies often borrow extensively to finance their operations. When interest rates fall, it lowers the companies' cost of borrowing.
Shares of Virginia-based utility Dominion Energy (D -0.16%) have jumped quite a bit in 2024. This move increased the stock's "positive" volatility. However, Dominion's five-year beta is a relatively low 0.6, reflecting its tendency to usually be less volatile than the S&P 500.
Buy-and-Hold Strategy
4. Materials
The materials sector includes companies that produce, process, and distribute raw materials such as minerals, oil, gas, and steel. Like industrials stocks, materials stocks can be volatile because they're closely connected with the overall economy.
Volatility in the materials sector can stem from factors including economic cycles, commodity price fluctuations, and supply chain disruptions. In 2024, falling commodity prices contributed to the increased volatility in the sector.
Shares of mining company Freeport-McMoRan (FCX 2.02%) have been especially volatile this year. The stock has experienced multiple double-digit percentage swings. Freeport-McMoRan's five-year beta is unsurprisingly high at 1.89.
5. Consumer staples
Like utilities stocks, consumer staples stocks usually aren't exceptionally volatile. Consumer staples include the kinds of products people use regularly, such as food and beverages, household products, and personal care products.
But consumer staples ranks as the fifth-most volatile sector right now, according to State Street. Declining inflation, which drives companies' costs higher and can push customers to look for less expensive alternatives, is creating positive volatility for some consumer staples stocks.
For example, shares of consumer staples giant Procter & Gamble (PG -0.84%) have soared in 2024 after falling slightly in 2023. P&G usually isn't volatile, though: Its five-year beta is a low 0.41.
Related investing topics
Should you invest?
Are volatile stocks right for you?
If you're a cautious investor who can't stand the thought of seeing the stocks you buy swinging wildly up and down, you'll probably be best avoiding highly volatile stocks. However, as we've seen, even some normally stable sectors can be more volatile at times.
On the other hand, aggressive investors who aren't risk-averse might prefer the excitement that highly volatile stocks offer. Higher volatility can often bring greater returns.
One way to reduce your risk when buying stocks, especially those with higher volatility, is to follow a buy-and-hold strategy. Some stocks that are exceptionally volatile over the short term won't be nearly as volatile over the long term.
It's also important to build a diversified portfolio that includes stocks that span a wide variety of sectors and industries. This approach increases your chances of long-term success.
Finally, manage your position sizes in highly volatile stocks. The number of shares that you buy can make a big difference in how much risk you take on.
