How to Construct a Screen for Volatile Stocks

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Volatility is a measure of price movement on any given day. The more a particular asset price moves around a mean daily price point, the more volatility it is said to have. In the financial world, volatility equals risk, so creating a stock screen for volatility can also be defined as finding stocks with high price risk. Standard deviation is the statistical tool used to measure volatility and "beta" is also risk viewed as a quantitative measure of volatility.

  • Use any stock screening software or create your own within a spreadsheet. Yahoo! Finance and Google have two dynamic stock screening models: however, Yahoo! Finance is more robust in terms of research and is rated highly by Alexa.com for financial research.

  • Create a filter for stocks with high beta values. Beta is the measure for how volatile a stock is compared to the general market. A beta of 1 indicates a stock acts in sync with the market. A beta greater than 1 is a sign of wider price swings. For example, a company with a beta of 1.50 will move 50 percent more than the general market--that is, a 5 percent move in the general market will create a 7.5 percent move for the 1.5 beta stock, based on experience.

  • Create a screen for 52-week-range percentages over 30 percent. You can also look for stocks that deviate more than 30 percent from the mean (positive or negative). The latter can be used for more 'manual' stock screen programs.

  • Create a screen subtracting the 52-week-range high from the low. Stocks with higher volatility will have higher ranges.

  • Create a screen for short interest. A high short interest means that a high number of short options are being sold on a particular security (which means speculators are betting on a price drop), and options respond to volatility. The short interest ratio is a common way to measure short interest on a stock. Yahoo! Finance carries this as one of its screening options. You can also access through the Key Statistics page in Yahoo! Finance and by scrolling to the bottom of the page.

  • Go to the biggest percent gainers and losers, listed daily on most financial research sites.

Tips & Warnings

  • Volatility is synonymous with risk. Stocks with high volatility increase your risk. Use extreme caution and always consult the advice a trained financial adviser before you invest.

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