06-27-2018, 02:22 PM
Might become relevant again..
He added: "This raises a key question for investors: which sectors and stocks are likely to produce the highest risk-adjusted returns in a market with below-average returns and elevated volatility?" The answer to this question lies in stocks with a high Sharpe ratio, Kostin said. The ratio, developed by the economist William Sharpe in the 1960s, is designed to help investors identify stocks with the best risk-adjusted returns. Goldman's High Sharpe Ratio basket includes stocks that have the highest ratios in every S&P 500 sector, which should deliver the best risk-adjusted returns even with higher volatility. It factors in consensus forecasts and the volatility implied by options prices. Kostin said the basket of stocks had underperformed the S&P 500 year-to-date by 2 percentage points but had generated an average six-month excess return of 334 basis points since 1999. "The basket performs best alongside above-average volatility, generating an average excess return of 559 bp in periods with realized volatility greater than 15 vs. 120 bp when realized volatility measures less than 15," Kostin said. A recent iteration of the basket included stocks that outperformed the market when absolute and relative volatility were low, like in 2017. But with volatility rising, Goldman has added nearly 40 new stocks to the basket, which are concentrated in the biotech, semiconductors, tech hardware, capital goods, food beverage, and tobacco industries. Some of the new stocks are:
Goldman's stock market recommendation as volatility rises on trade war - Business Insider