When Volatility Increases
It is important to understand the difference between volatility and risk. Volatility in the financial markets is seen as extreme and rapid price swings. Risk is the possibility of losing some or all of an investment. So as volatility increases, so does profit potential and the risk of loss, as the market swings from peaks to troughs. There is a marked increase in the frequency of trades during these periods and a corresponding decrease in the amount of time that positions are held. During times of increased volatility, a hyper-sensitivity to news is often reflected in market prices.
Directional Investing
Most private investors practice directional investing, which simply requires the markets to move consistently in the desired direction, which can be either up or down. Market timers, long or short equity investors and trend investors all rely on directional investing strategies. Times of increased volatility can result in a directionless or sideways market, repeatedly triggering stop losses. Gains earned over years can be eroded in a few days.
Non-Directional Investing
Non-directional investors attempt to take advantage of market inefficiencies and relative pricing discrepancies. Following are some strategies they deploy:
Equity Market Neutral - Here is where stock pickers can shine, because the ability to pick the right stock is just about all that matters with this strategy. The goal is to leverage differences in stock prices by being both long and short among stocks in the same sector, industry, nation, market cap, etc. By focusing on the sector and not the market as a whole, emphasis is placed on movement within a category. Consequently, a loss on a short position can be quickly offset by a gain on a long one. The trick is to identify the standout and the underperforming stocks. The principle behind this strategy is that your gains will be more closely linked to the difference between the best and worst performers than the overall market performance and therefore will be less susceptible to market volatility. Merger Arbitrage - Many private investors have noticed that the stocks of two companies involved in a potential merger or acquisition often react differently to the news of the impending action and try to take advantage of the shareholders' reaction. Often the acquirer's stock is discounted while the stock of the company to be acquired rises in anticipation of the buyout. A merger arbitrage strategy attempts to take advantage of the fact that the stocks combined generally trade at a discount to the post-merger price due to the risk that any merger could fall apart. Hoping that the merger will close, the investor should simultaneously buy the target company stock and short the acquiring company's stock. Relative Value Arbitrage - The relative value approach seeks out a correlation between securities and is typically used during a sideways market. What kinds of pairs are ideal? They are heavyweight stocks within the same industry that share a significant amount of trading history. Once you've identified the similarities, it's time to wait for their paths to diverge. A 5% or larger divergence lasting two days or more signals that you can open a position in both securities with the expectation they will eventually converge. You can long the undervalued security and short the overvalued one, and then close both positions once they converge. Event Driven - This scenario is triggered by corporate upheaval, whether it be a merger, assets sale, restructuring or even bankruptcy. Any of these events can temporarily inflate or deflate a company's stock price while the market attempts to judge and value these newest developments. This strategy does require analytical skills to identify the core issue and what will resolve it, as well as the ability to determine individual performance relative to the market in general. Trading on Volatility
5 Best Performing Stocks To Invest In 2014: Honeywell Intl Inc(HON.L)
Honeywell International Inc. operates as a diversified technology and manufacturing company worldwide. Its Aerospace segment provides turbine propulsion engines, auxiliary power units, environmental control and electric power systems, engine systems and accessories, avionic systems, aircraft lighting, inertial sensors, control products, space products and subsystems, and landing products for aircraft manufacturers, airlines, business and general aviation, military, space, and airport operations, as well as offers management and technical, logistics, aircraft wheels and brakes and repair, and overhaul services. The company?s Automation and Control Solutions segment provides environmental and combustion controls, and sensing controls; security and life safety products and services; scanning and mobility products; process automation products and solutions; and building solutions and services for homes, buildings, and industrial facilities. Its Performance Materials and Techn ologies segment provides resins and chemicals; hydrofluoric acid; fluorocarbons; nuclear services; research and fine chemicals; performance chemicals; chemical processing sealants; fibers and composites; specialty films and additives; imaging and electronic chemicals; semiconductor materials and services; catalysts, adsorbents, and specialties; and renewable fuels and chemicals. It offers products for applications in the refining, petrochemical, automotive, healthcare, agricultural, packaging, refrigeration, appliance, housing, semiconductor, wax, and adhesives segments. This segment also provides process technology and equipment for the petroleum refining, and petrochemical and gas processing industries. The company?s Transportation Systems segment provides charge-air systems; thermal systems; and brake hard parts and other friction materials for passenger cars and commercial vehicles. Honeywell International Inc. was founded in 1920 and is headquartered in Morris Township , New Jersey.
5 Best Performing Stocks To Invest In 2014: NextEra Energy Inc. (NEE)
NextEra Energy, Inc., through its subsidiaries, engages in the generation, transmission, distribution, and sale of electric energy in the United States and Canada. As of December 31, 2010, NextEra Energy had approximately 43,000 mega watts of generating capacity. The company involves in the generation of renewable energy from wind and solar projects. It also generates electricity through natural gas, nuclear, oil and coal, and hydro power plants. The company serves approximately 8.7 million people through approximately 4.5 million customer accounts in the east and lower west coasts of Florida. In addition, it leases wholesale fiber-optic network capacity and dark fiber to telephone, wireless carriers, Internet, and other telecommunications companies. The company was formerly known as FPL Group, Inc. and changed its name to NextEra Energy, Inc. in May 2010. NextEra Energy, Inc. was founded in 1984 and is headquartered in Juno Beach, Florida.
Advisors' Opinion:- [By Ben Levisohn]
Abbvie (ABBV)
Ameren Corp. (AEE)
Arthur J. Gallagher (AJG)
E.I. DuPont de Nemours & Co. (DD)
ENSCO (ESV)
Enterprise Products Partners LP (EPD)
General Mills (GIS)
H&R Block (HRB)
Hancock Holding (HBHC)
Kraft Foods Group (KRFT)
Lorillard (LO)
Magellan Midstream Partners LP (MMP)
MarkWest Energy Partners L P (MWE)
McDonald’s (MCD)
Microchip Technology (MCHP)
NextEra Energy (NEE)
Regency Centers (REG)
TELUS Corp. (TU)
West Corp. (WSTC)
Williams Companies (WMB)
Hot Biotech Stocks To Invest In Right Now: Donegal Group Inc.(DGICB)
Donegal Group Inc., through its subsidiaries, offers personal and commercial lines of property and casualty insurance to businesses and individuals in the United States. The company?s personal lines of insurance products include private passenger automobile insurance, which provides protection against liability for bodily injury and property damage arising from automobile accidents, and protection against loss from damage to automobiles owned by the insured; and homeowners insurance that offers coverage for damage to residences and their contents from a range of perils, including fire, lightning, windstorm, and theft, as well as covers liability of the insured arising from injury to other persons or their property. Its commercial lines of insurance products comprise commercial automobile policies that provide protection against liability for bodily injury and property damage arising from automobile accidents, and protection against loss from damage to automobiles owned by the insured; commercial multi-peril policies, which offer protection to businesses against various perils primarily combining liability and physical damage coverages; and workers? compensation policies that provide benefits to employees for injuries sustained during employment. Donegal Group Inc. markets its insurance products through a network of approximately 2,200 independent insurance agencies. As of December 31, 2010, it wrote business in 22 states of the United States. The company was founded in 1986 and is headquartered in Marietta, Pennsylvania.
Advisors' Opinion:- [By Jake L'Ecuyer]
Shares of Donegal Group (NASDAQ: DGICB) got a boost, shooting up 16.24 percent to $23.22 after Gregory Shepard offered $33-$37 per share for Donegal Group.
- [By Luke Jacobi]
Donegal Group (NASDAQ: DGICB) closed up 14.86 percent to $23.95 after Gregory Shepard offered $33-$37 per share for Donegal Group.
The ExOne (NASDAQ: XONE) gained 4.13 percent to closed at $48.32 as 3D printing stocks once again were spotlighted for today's trading session.
5 Best Performing Stocks To Invest In 2014: Apple Inc.(AAPL)
Apple Inc., together with subsidiaries, designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. The company sells its products worldwide through its online stores, retail stores, direct sales force, third-party wholesalers, resellers, and value-added resellers. In addition, it sells third-party Mac, iPhone, iPad, and iPod compatible products, including application software, printers, storage devices, speakers, headphones, and other accessories and peripherals through its online and retail stores; and digital content and applications through the iTunes Store. The company sells its products to consumer, small and mid-sized business, education, enterprise, government, and creative markets. As of September 25, 2010, it had 317 retail stores, including 233 stores in the United States and 84 stores internationally. The company, formerly known as Apple Computer, Inc., was founded in 1976 and is headquartered in Cupertino, California.
Advisors' Opinion:- [By Doug Ehrman]
Of the many new rollouts introduced by Apple (NASDAQ: AAPL ) at this year's Worldwide Developers Conference (WWDC), one with the real potential to change our lives, was "iOS in the Car." The system is Cupertino's answer to fully integrating Apple products into your automobile, thus taking the place of the native systems that have been designed by various car manufacturers over the years. While this genesis may seem inevitable, not every car maker is ready to hand over the reins.
- [By Evan Niu, CFA]
With Apple (NASDAQ: AAPL ) and Cirrus Logic (NASDAQ: CRUS ) holding hands today as they dive into new 52-week lows, how cheap have shares gotten? Answer: Very.
5 Best Performing Stocks To Invest In 2014: Cinemark Holdings Inc(CNK)
Cinemark Holdings, Inc. and its subsidiaries engage in the motion picture exhibition business. As of June 30, 2011, it operated 436 theatres with 4,983 screens in 39 states of the United States, as well as in Brazil, Mexico, and 11 other Latin American countries. The company is headquartered in Plano, Texas.
Advisors' Opinion:- [By John Udovich]
The shares of small cap IMAX Corporation (NYSE: IMAX) have slipped more than 10% this week on growth concerns - meaning it might be a good idea to take a closer look at the stock plus its performance�verses other cinema stocks like Carmike Cinemas, Inc (NASDAQ: CKEC), Cinemark Holdings, Inc (NYSE: CNK) and Regal Entertainment Group (NYSE: RGC) along with the PowerShares Dynamic Leisure & Entertainment ETF�(NYSEARCA: PEJ).
- [By Rich Smith]
As movie-theater operator Cinemark (NYSE: CNK ) exits the Mexican market, another "gringo" is expanding to fill the gap -- from even farther north of the border.
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