Most Volatile Stocks in India: How to Identify Them?

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The Indian share market, and the share market anywhere for that matter, witnesses' fluctuations. Trends in the stock market may be bearish or bullish. These trends are prone to change depending on many factors. Nonetheless, some stocks are inherently volatile. These are subject to fluctuations frequently relative to the market. The most volatile stocks are often searched for by traders as they may offer potentially lucrative returns due to their sharp price movements. Now, you may be interested to know what these stocks are and how to identify them. Before going into depth about that, it is vital that you get some clarity on volatility itself. 

Highlights

  • What does stock market volatility mean?
  • How to Identify the Most Volatile Stocks
  • What does Beta measure?
  • Should you invest in the most volatile stocks?

Stock Market Volatility - What does it mean?

Identifying the most volatile stocks in the share market may become an easier task if you know what volatility in the stock market entails. In the stock market, volatility represents the movements of the price of a stock from its original price or value. It can also be reflective of a stock’s price movement compared to the stock’s index. Volatility is dynamic and can take place every second or every minute, depending on the stock and other factors. 

It is important to note that various traders have different concepts that define volatile stocks in the market. For instance, the most volatile stocks for intraday trading may be considered as the high and low prices of stock within the span of a day. On the other hand, traders may describe volatility as the highest volume that is traded. For still other traders, volatility could be based on charts and other historical data of a particular stock’s performance. 

Most Volatile Stocks - How do you identify them?

There are several indicators you can use to identify the most volatile stocks in the share market. You must remember that these stocks are highly fluctuating stocks, and their prices change rapidly. The regularly used indicator to identify the most volatile stocks is known as Beta. Beta is a metric that measures the volatility of a stock compared to the stock’s index. 

On the NSE, National Stock Exchange, there is an index known as the Nifty High Beta 50, consisting of the 50 most volatile stocks listed on the National Stock Exchange. This index is responsible for tracking these stocks compared to the overall share market. It effectively acts as a benchmark for trading with the most volatile stocks. Another identifier for knowing about the most volatile stocks, and this is a significant feature of the stocks on the Nifty High Beta 50, is the high risk-return ratio of these stocks. 

What does Beta measure?

What Beta does is measure the volatility or the systematic risk of a specific stock. This is the risk that has to be borne by any trader who invests in that stock. Consequently, for the trader, there may be high returns too. As the prices of volatile stocks tend to fluctuate at a fast pace, the chances of earning lucrative returns on the most volatile stocks in intraday trading are potentially higher than if trading was spread over a longer period. 

Traders use an important method to evaluate the most volatile stocks in any market. So, when the Beta is equal to 1, this means that the stock is performing in the same way as compared to its benchmark index. If the Beta is less than 1, this means that a specific stock will fluctuate less as compared to its benchmark index. However, if the value of Beta exceeds 1, then this means that a stock will exhibit higher fluctuations as compared to its benchmark index. 

It is important to note that any market or index fluctuations, however minor, tend to impact volatile stocks to a great extent. When the volatility of a stock rises, the opportunity for traders to earn higher-than-average returns also rises. This has an impact on the supply and demand of such shares, increasing supply and demand for such shares, within a day. Consequently, the traded volume of these shares also goes up. 

Should you invest in the most volatile stocks?

There are merits and demerits of investing in the most volatile stocks. To be sure, these stocks experience great fluctuations, and present you with opportunities for higher returns than other stocks that may not have a volatile nature. Additionally, these stocks are normally those of small-cap and mid-cap companies and they may be offered at lower prices than those of large-caps. You may assess your investment profile before you invest or trade in such stocks. 

These stocks may potentially suit short-term investors and those traders who don’t mind the high risk associated with trading in them. Compared to blue-chip stocks, those of large-cap companies, that are invested in for the long term usually, volatile stocks are considered for short-term gains. Investors and traders can consider investing and trading according to their individual financial goals and needs. 

Sources:

Best High Volatility Stocks of Nifty 500 (2024) – Blog by Tickertape

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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