Tech Stocks Risk-Return Ratio : which of these stocks meets your degree of risk?

What are the best technology stocks with the best Risk - Return Ratio ? And which of these stocks meet your degree of risk ?

For this analysis I will use a three-year time frame for convenience and use a return and standard deviation with the same time frame.

Let's the graphs speak . 

But first let’s look at the performance of the stocks compared to SPY.

Many novice investors and traders when they start betting on the stock market are often attracted by the gains while neglecting the risks . This is a big mistake that many people make .

With a simple Risk - Return basic analysis you can already see which stocks to invest in or trade based on your risk attitude .  This small basic analysis serves to make you aware of what you are getting into and what dangers you may be putting your hard-earned savings at risk .

Let's take a look at the three-year average return 

Now let's look at stocks according to their risk or volatility using the three-year standard deviation 

And finally, our Risk - Return chart 

We sort our values in a table and then draw our conclusions

Et voilà!!!  

Considering the S&P 500 (SPY) as the benchmark, the best ratio stocks are NVDA AVGO ORCL AAPL and MSFT. The choice of stocks varies depending on the risk profile each of us has. NVDA is the stock with the highest volatility and return, suitable for an investor or trader with a high risk appetite. For a risk-averse person who wants to invest some of his or her savings in stocks with a long-term perspective, targeting an ETF such as SPY could be a solution. For someone who tends toward moderate risk, MSFT and APPL might be a good investment.

It depends on each of us how much we are willing to risk to get the desired return. The higher the return, the higher the risk.

But before venturing out and making your own bets, it is always best to do your own due diligence and contact your trusted advisor. 

Disclaimer : The information provided in this article is strictly to educational and entertainment purpose only and does not constitute investment advice, financial advice, business advice, or any other type of advice, and you should not consider the contents of this article as such. NotOnlyEquity does not recommend the purchase, sale or holding of stocks, bonds, derivatives or any other assets. Before making any investment decision, you should conduct your own due diligence and consult your financial advisor.

Correlation Matrix : 14 Moat Stocks Vs SPY

Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other.

Correlation shows the strength of a relationship between two variables and is expressed numerically by the correlation coefficient. The correlation coefficient’s values range between -1.0 and 1.0.

A perfect positive correlation means that the correlation coefficient is exactly 1. This implies that as one security moves, either up or down, the other security moves in lockstep, in the same direction. A perfect negative correlation, -1, means that two assets move in opposite directions, while a zero correlation implies no linear relationship at all.

Negative correlations of investments are used with portfolio risk management to decide how to allocate assets. Portfolio managers and investors believe that some of the risk associated with the portfolio would be diversified if they can assemble a portfolio of negatively correlated assets. The strategy of assembling negatively correlated assets might be appropriate, for example, if a portfolio manager is forecasting a market crash or in times of high volatility and combine assets to produce a low volatility portfolio. Using negatively correlated investments helps to reduce the overall volatility of the portfolio.

Investors who wish to mitigate risk can do so by investing in non-correlated assets

While finding perfectly uncorrelated stocks is pretty much impossible, you can aim to have a mix of stocks with varying correlations. This will reduce the volatility and the maximum drawdown of the portfolio, factors that are critical for prudent portfolio construction. It will also reduce the correlation to market benchmarks such as the S&P 500.

Last important point : Correlation is not a static value; it evolves over time. Regularly assessing and updating correlation matrices can help in identifying potential issue and adapting strategies accordingly. A lack of monitoring can lead to underestimating the risks and the potential impact on the portfolio.

Now let’s look at a real application . I have randomly selected 14 stocks endowed with solid competitive advantages or Moat as Buffet calls them.

Let’s see them graphically .

Correlation is just one of many tools available to the investor and is used to examine the diversification risk of one’s portfolio.

As always, it is necessary to conduct further research and make appropriate assessments before committing your capital.