8 Low-Volatility Stocks for Human Investors

by Beth Gaston Moon | February 14, 2012 11:15 am

With its low price and high trading volume, Bank of America (NYSE:BAC[1]) is an extremely liquid stock. Throw in decently inflated volatility and it becomes a popular choice for all kinds of investors, professional and retail, corporeal and robotic.

Late last week, BAC was declared “a high-frequency trader’s dream” because it “soars faster” than other financial names when stocks are rising and “drops like a stone” when stocks are moving lower.

The high-frequency trading (HFT) strategy is powered by computer-driven algorithms that capitalize on small pops up or down. These minuscule moves pack a bigger punch in low-priced stocks: A nickel change in a $10 stock is a half-percent rise; the same move in a $300 stock is closer to 0.02%.

So this got us thinking … if the HFT-bots love BAC for its low price, high volume, and decent volatility, there must be stocks on the other side of the spectrum that are fairly safe from the volatility swings the HFT crowd craves.

We considered stocks trading above $300 for the reason described above. HFT computers look to exploit small moves, and small moves don’t mean much for pricey stocks.

We also considered historical volatility (HV) for the stocks. Bank of America’s current 30-day historical volatility is around 45%. That’s the current annualized standard deviation for BAC.  AutoZone (NYSE:AZO[2]), on the other hand, has a 30-day HV of just 13%.

Finally, we looked at trading volume. Over the last three months, average daily volume for Bank of America was 277 million shares — per trading day! The omnipresent and adored Apple (NASDAQ:AAPL[3]) sees only 12.5 million shares trade per day (must be something to do with that $500 price tag). Many other names on this list don’t even see one million shares change hands on a daily basis.

The eight stocks in the table below have historical volatility and daily trading volume that is considerably lower than BAC’s (last row, for comparison) and prices well into the triple digits. Even some very popular stocks, such as AAPL and Google (NASDAQ:GOOG[4]), make this list due to their relatively low volatility and high volume.

company ticker 30-day HV
(one week ago)
(feb.13 close)
avg daily volume (three-month)
Apple AAPL 23.1 502.60 12.5M
AutoZone AZO 13.4 358.46 328K
Chipotle Mexican Grill CMG 17.4 377.45 509K
Google GOOG 33.7 612.20 2.9M
Intuitive Surgical ISRG 30.0 503.07 359K
MasterCard MA 30.2 396.65 1.1M
Priceline.com PCLN 25.3 571.15 844K
Washington Post WPO 19.9 388.27 27K
Bank of America BAC 45.3 8.25 277M

These factors don’t mean that GOOG, AAPL and the others are conservative investments. But they could possibly offer more “authentic” trading experiences, without the inflated volume and rapid-fire trading sustained by those stocks favored by high-frequency traders.

What other names might the HFT community avoid? And does this make you more or less likely to consider them for your own portfolio?

  1. BAC: http://studio-5.financialcontent.com/investplace/quote?Symbol=BAC
  2. AZO: http://studio-5.financialcontent.com/investplace/quote?Symbol=AZO
  3. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  4. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG

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