You can now screen for low volatility stocks

22/02/2016 | Volatility

We have just added three indicators to the Quant Investing stock screener that you can use to find low volatility stock investment ideas.


Why is volatility interesting?

How can low stock price volatility help your returns you may be thinking?

The 2014 research paper by Robert Novy-Marx called Understanding Defensive Equity found that certain low volatility companies substantially outperform the market. 

Here is the abstract from the paper:

High volatility and high beta stocks tilt strongly to small, unprofitable, and growth firms. These tilts explain the poor absolute performance of the most aggressive stocks.

In conjunction with the well documented inability of the Fama and French three-factor model to price small growth stocks, especially unprofitable small growth stocks, these tilts also drive the abnormal performance of defensive equity (i.e., low volatility and/or low beta strategies).

While defensive strategy performance is explained by controlling for size, profitability, and relative valuations, the converse is false--the performance of value and profitability strategies cannot by explained using defensive equity performance.

Source: Understanding Defensive Equity


Three low volatility indicators added

The three volatility indicators we added are:

  • Three month stock price volatility (Vola 3m) = Calculated as the daily log normal returns and standard deviation of the share price over 3 months annualised.
  • Six month stock price volatility (Vola 6m) = Daily log normal returns and standard deviation of the share price over 6 months annualised.
  • One year stock price volatility (Vola 1yr) = Weekly log normal returns and standard deviation of the share price over one year annualised.


According to the above study the lower the volatility the better.

The three volatility indicators have been annualised so that you can easily compare them with each other.

Be careful – you can also have low volatility if the share does not trade that often so make sure you included traded volume in your screen.


PS To get these low volatility indicators working in your portfolio sign up here.

PPS It is so easy to put things off, why not sign up right now before you forget?