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U.S. stocks closed sharply higher on Monday, giving the S&P 500 its biggest rally since August, after German Chancellor Angela Merkel and French President Nicolas Sarkozy said they would finalize a "comprehensive response" to the debt crisis by the end of the month.

Since banks are at the stem of the European crisis, U.S. financials also reacted positively to this news. The Dow Jones industrial average soared 330 points, led by Bank of America Corp (NYSE:BAC) higher at 6.44% and JP Morgan Chase (NYSE:JPM) higher at 5.21%.

Over the last few months, the market has been sharply volatile on political news, investor sentiments, U.S. economic concerns, and European crisis developments.

As much of the fear stems from Europe having a global impact, further clarity about the European debt resolution in the coming weeks may help tame some of the volatility, but the primary driver will remain the domestic economy.

Domestic economy concerns have been overshadowed by global issues. However, in the near-term as we get closer to the elections and resolution from Europe becomes clearer, U.S. politics and domestic economy will primarily drive the U.S. stocks, signaling further volatility.

To cope with the volatile market, investors find low beta stocks to be their safe haven. The reason is simple – beta measures the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. A beta of less than 1 indicates that the stock will be less volatile than the market, while a beta of greater than 1 indicates that the stock will be more volatile than the market.

Low beta stocks are generally considered defensive stocks, since they are not hurt as severely in a down market. An additional perk of low beta stocks is that many of them tend to provide higher dividend yields than high beta stocks. For instance, AT&T (NYSE:T), Raytheon (NYSE:RTN) and Consolidated Edison (NYSE:ED) are all low beta stocks that have dividends yielding higher than 4 percent each. My past article provides a complete list of dividend yielding stocks.

Although beta is the most popular measure for assessing risk, beta is not free from flaws. To use this measure successfully, investors should keep in mind beta’s fallbacks. Simply put, betas are merely rear-view mirrors disregarding what lies ahead. This means that beta doesn't incorporate new information and is solely based on historical data. Furthermore, new stocks, such as certain technology stocks, have insufficient price history to establish a reliable beta. Also, certain stocks that have dropped sharply in the near-term may show high beta scores disguising discounted value stocks as high risk stocks.

For instance, bank stocks tend to be sharply impacted by political and economic developments regarding domestic debts and European crisis. Coincidentally, bank stocks have higher beta scores. Bank of America has a beta of 2.76, which means that Bank of America is significantly more volatile that the general market. Bank of America has lost nearly 56% year-to-date having a major impact on its beta score. While high betas may mean price volatility over the near term, they don't always rule out long-term opportunities, which may be the case for many banks.

Conversely, a common characteristic of low beta stocks is that they are all non-cyclical. Examples would include food, tobacco, and utilities where demand remains stable under difficult economic conditions. The list below includes low beta stocks taking into consideration the flaws of the beta and only including the stocks for which beta score provides a meaningful insight:

Stock

Beta

Consolidated Edison Inc. (ED)

0.24

Abbott Laboratories (NYSE:ABT)

0.31

McDonald's Corp. (NYSE:MCD)

0.36

Wal-Mart Stores Inc. (NYSE:WMT)

0.39

AT&T Inc. (T)

0.44

The Coca-Cola Company (NYSE:KO)

0.59

Raytheon Co. (RTN)

0.68

Disclosure: I am long BAC, T.

Source: 7 Low Beta Stocks: Making Money In A Volatile Market