Key volatility points in 2020

December 23, 2020
1 year ago

With the arrival of the COVID-19 pandemic and its influence in the economic and social area, mainly, the financial scenario for investments is being considered with more caution, since investment trends are experiencing periods of volatility.

Volatility in financial markets represents how the risk of an asset is measured. In other words, markets may experience periods of volatility due to unforeseen external events causing assets to fluctuate for or against, and thus causing their profitability to change.

Much is being said on this issue, although it is expected that with the arrival of the vaccine and aid from central banks, there will be an economic recovery in the markets over the next few months.

If you want to invest in the markets, volatility is one of the relevant factors when making decisions on stocks. To do this, we explain a few key points to keep in mind about volatility:

  • Take historical volatility(previous data) and implied volatility (asset prices) as references. If both show similar values, the price is considered fair. If there are deviations it shows that the assets are overvalued or undervalued.

  • In short-term trading, correctly predicting transactions can help increase profit potential.

  • Volatility is normal within long-term investments, so it helps to better plan the investment.

  • If volatility is high, the presence of uncertainty, there are investors who take advantage of not investing for fear of losing funds, and others who participate with risk to obtain greater long-term profits, and opportunities can be generated in assets.

  • Keeping an eye on price swings, holding stocks, and/or diversifying new ones can help lower riskand generate more consistent returns.

  • Pre-planning the investment (analyzing needs and objectives), mainly in quality securities and acting with caution, without being carried away by euphoria or by investors' fear.

  • Make regular contributions and be consistent. This helps to reduce the average cost of fund subscriptions and maintain greater stability.

In short, it seems that volatility in financial markets will be present in the coming months and we will be attentive to its evolution.

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