The Pros And Cons Of Volatility In The Energy Market

Decent Essays
Last year, we expected volatility in the energy market and a U.S. dollar bull market to be positive for low volatility funds in the United States. The iShares USA Minimum Volatility (USMV) was the top pick for best ETF to buy before 2015, and the fund performed admirably. The fund finished with a gain of 5.45 percent in 2015, which outperformed the 1.25 percent return of the SPDR S&P 500 (SPY). The fund achieved the return with less volatility and a trading range of 10 percent from high to low. For SPY, the range was 40 percent, which is 14 percent larger than USMV.

For the year 2016, volatility could resemble 2015. The stock market enjoyed abnormally low volatility during the Federal Reserve’s zero interest rate period, but with rates starting to return to normal, market volatility is also likely to resume. The
…show more content…
According to Investopedia, beta measures the systemic risk of securities compared to overall markets. The capital asset pricing model, known as CAPM, calculates return on assets based on the securities overall beta and expected market returns.
The total stock market, which is often used as the benchmark for many funds, has a total beta of one. Other securities derive their beta based on their correlation with the market. For example, if an investment has a beta of one, the measurement indicates that the investment will move in sync with the market. Any investment with a beta less than one represents that the investment is less volatile than the benchmark.

Although beta is a useful tool, it is not a complete picture of risk and has some drawbacks. First, beta is backwards looking, typically based on three years of data. A stock in a sector long ignored by the market will have a very low beta, and if it suddenly becomes popular, the beta could rise significantly. Utility stocks were notoriously low beta, but after deregulation opened up competition, betas

Related Documents

  • Decent Essays

    In case of NIIT it was 1.47 in 2010 and it went 1.42 in 2011 and 1.16 in 2012 and came to 1.22 in 2013. On the other hand in 3i Infotech the ratio was greater than NIIT throughout. From this we conclude 3i Infotech is more risky than NIIT because they have more liabilities and less equity. • In table 8 total debt/equity ratio has been calculated. In case of NIIT this ratio was 0.64 in 2010 whereas in 3i Infotech it was 0.87.…

    • 1545 Words
    • 7 Pages
    Decent Essays
  • Decent Essays

    Finally, for EPS, the industry average for 2016 was 7.45, and while all three banks were below this amount Bank of America was well below this average at 1.72. However, despite the low EPS, all three banks performed well above the industry averages meaning that they are considered more profitable and attractive by investors. To combat the extremely low EPS, Bank of America could benefit from a reverse stock split, reducing the number of shares outstanding, as that would increase earnings per share while also increasing the par value of the shares. Looking at company progressions, TB Bank has slightly improved in each ratio from 2012-2015. Chase Bank has also improved in each ratio.…

    • 740 Words
    • 3 Pages
    Decent Essays
  • Decent Essays

    Verizon Ratio Analysis

    • 1045 Words
    • 4 Pages

    In the inventory turnover ratio, we discovered that this ratio can be compared to the industry average to find out if the company is doing well. Currently, communication services inventory is averaging about 44.16 . Verizon inventory turnover remain at 41.8 in 2013 and 45.6 in 2015. T-Mobile inventory turnover was relatively good in 2013 at 47.3 but their number has been dropping from 26.30 in 2014 and in 2015 is at 13.73, which is consider low. T-Mobile inventory turnover seem to support the number in the average collection paid ratio because it is significantly high.…

    • 1045 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    It trades at less than 15 times last year’s earnings, while the forward P/E is less than 9. Additionally, a PEG ratio of less than 1, at 0.52, is another indication of undervaluation. At this valuation, Delta Air Lines looks like an enticing proposition, especially since it has industry-leading metrics and has one of the most attractive valuations. This is evident from the chart given below: Source: Delta Air Lines Conclusion Hence, there are a number of reasons why Delta Air Lines is still a good bet even though it trades near the higher end of its 52-week band. The company’s earnings power will continue getting better as costs decline and it taps growth markets such as Brazil.…

    • 908 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    Convertible Bonds Essay

    • 1399 Words
    • 6 Pages

    If a company’s stock prices rise past a certain amount, a company can place a call option on the bonds which can cap an investors profit. Convertible bonds tend…

    • 1399 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    Over the five years (1994-1999), growth stocks outperformed value stocks. Should DFA have reconsidered its strategy in 2000? If you worked for DFA in 2000, how would you have explained the poor performance of the fund to your clients? DFA recognized the sky-high valuations of growth stocks in 2000 and 2001 and that value stocks, being relatively cheaper, provided more tempting opportunities. Ultimately, DFA’s bet to stick with its overall small cap/value strategy, proved to be the right move.…

    • 2379 Words
    • 10 Pages
    Decent Essays
  • Decent Essays

    Rroton Ratio Analysis

    • 1293 Words
    • 6 Pages

    In 2013, the positive trends in some ratios are reversed. The growth in EPS is interesting given the profit margin is decreasing from 2012 to 2013.The EPS has gone from 60.77 cents in 2011, 60.99 cents in 2012 to 67.15 cents in 2013. It must be remembered the revenue is increasing during the three years. Consequently, any ratio that involves the number of revenue in the dominator will increase all else being equal. the gross cash flow per share is higher than the EPS, but the gross cash flow per share may not be restricted to operating cash flow only.…

    • 1293 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    Which positions exceeded your expectation and which factors created a gap? The position of company Vanguard Dividend Appreciation Idx Inv (VDAIX) was beyond the expectations. The reason is that when we invested in the stock it was operating at the share price of 30.16 on 1st February. In this way, the historical stock price trend of the company indicates that the company was operating profitably and we invested in this portfolio. However, the stock started to decline and the fluctuations were in between $29 to $31 per share.…

    • 1803 Words
    • 8 Pages
    Decent Essays
  • Decent Essays

    Goldman Sachs Case Study

    • 1384 Words
    • 6 Pages

    • UBS: competes on trading, asset management and investment banking. Table 3 shows 2016 ratios for Goldman Sachs and its competitors. Goldman Sachs performed slightly better than most observed competitors in 2016, with a return on equity (ROE) of 8.48%. Only JPMorgan did better, with a ROE of 9.86%. The 6.03% average ROE was skewed due to Deutsche Bank’s bad performance.…

    • 1384 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    My Portfolio Essay

    • 1767 Words
    • 8 Pages

    The modification started on April 24th, 2015. During the first week, my portfolio was doing pretty good compared to the S&P 500 small relative returns. Though the return was positive in order to achieve my objectives of high return while assuming moderate risk, I had to make some modifications to my portfolio. The S&P 500 futures, June contract prices did not show a clear direction. These seemed to be too risky holding them.…

    • 1767 Words
    • 8 Pages
    Decent Essays