If you’re a trader who’s looking for volatility, the short-interest table is a veritable candy store of investment candidates. But beware: Most of the names on the list might prove to be an all-or-nothing bet.

The impetus for this look at short interest comes from Bespoke Investment Group’s blog. On Tuesday, Bespoke published a list of the S&P 1500 stocks with the largest short interest as a percent of float. A look at this 30-stock list leads to the question: Is this group fertile ground for stocks that could perform well in the next three months because of the potential for a short squeeze?

For an answer, investors can look back to the same list published on Bespoke’s blog on June 27, and measure the performance of the stocks since that time.

The most notable aspect of the results, which can be viewed here, is that almost every stock on the list has provided a massive performance differential relative to the S&P 500. Here are some of the notable highlights from the data*:

• From June 27 through Sept. 19, 17 of the 30 stocks gained while 13 fell.
• The average return of all 30 stocks was 10.24%, which was exactly in line with the 10.16% gain of the S&P 500 Index during that time.
• Here’s where it gets interesting: Of the 17 stocks that rose, the average return was 37.59% — a full 27.43 percentage points above the broader market. Removing the outlier — Savient Pharmaceuticals (NASDAQ:SVNT), which gained 218% — the numbers still check in at an average of 23.79%, or outperformance of 13.63 percentage points.
• The return differential was nearly as dramatic among the stocks that fell. The average return of the 13 losers was -26.3%, an enormous gap of 36.46 percentage points below the S&P.

This type of differential is consistent with what one could expect from the short-interest list. By its very nature, it will contain a number of companies that are subject to binary events that can lead to big moves in their stock prices. This leads to the next question, at least for those not inclined to employ option strangles: Is there any way to identify the direction of the volatility?

Based on the high-short-interest stocks from June, there might be a rough indication of what will happen next based on what occurred in the prior three months:

• Of the 30 stocks on the June list, 20 underperformed the S&P in the three months before the publication of the list. The average return of these stocks since has been a gain of 23%.
• For the 10 stocks that had outperformed the S&P in the prior three months, the average return was -12.4%.

The conclusion, at least from this small sample, is that the short-interest list provides fertile ground to find stocks likely to stage a reversal from their current trend.

What stocks might be vulnerable to such a reversal now? For candidates, see the table below, which shows the returns of the stocks on the current Bespoke list over the prior three months through Sept. 19. During the same period, the S&P 500 rose 7.59%.

However, keep in mind that the analysis above incorporates just 30 stocks and one time period, and that the results from this group could be much different from what occurred with the group discussed above. Still, it can provide traders with a starting point for further investigation.

* It’s important to note that there is a lag between the date of the short interest and the publication of the report. Since the report lags, this analysis utilizes the date the information becomes available to investors.

As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.