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Utility Stocks: Key Quantitative Insights for Investors

PART:
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Part 2
Utility Stocks: Key Quantitative Insights for Investors PART 2 OF 3

Analyzing the Implied Volatility of Utility Stocks

Utility stocks with high implied volatilities

NRG Energy (NRG) has risen 2% in the past year. It also has the highest implied volatility of all the utility companies that make up the Utilities Select Sector SPDR ETF (XLU), as we saw in the previous part of this series.

Analyzing the Implied Volatility of Utility Stocks

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In the past week, NRG Energy has fallen 11.1%, the highest among high implied volatility stocks. In contrast, XLU has risen 0.1%. The S&P 500 Index (SPY) (SPX-INDEX) rose 0.6% during the week. The utility sector accounts for ~3.2% of the S&P 500 Index. In part one of this series, we discussed the factors that contributed to the fall in NRG Energy.

The above chart shows the trailing one-year and one-week returns of the stocks we identified in the previous part as having high and low implied volatilities. High implied volatility stocks saw sharper movements and tended to fall more than low implied volatility stocks.

Among high implied volatility stocks, AES (AES) rose the most in the past one year. On May 5, 2017, AES announced a joint venture with ENGIE to engage in the sale of liquefied natural gas (LNG) in Central America.

Returns of utility stocks with low implied volatilities

Among low implied volatility utility stocks, Public Service Enterprise Group (PEG) was the only loser in the last one week and in the past year. On April 28, 2017, it announced its 1Q17 earnings. It reported a net income of $0.22 per share. On the same day, the stock fell 0.8%.

Among low implied volatility utility stocks, Consolidated Edison (ED) was the outperformer in the past one year. On May 4, 2017, it reported its 1Q17 earnings. It reported EPS of $1.27 compared to Wall Street estimates of $1.15 per share.

In the next part of this series, we’ll look at utility stocks with the highest short-interest-to-equity float ratios. High short interest in a stock can cause its implied volatility to rise.

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