If volatility is to remain low for H2, go with stocks with the highest prospective Sharpe ratio, says Goldman.
The bank's High Sharpe Ratio basket holds 50 stocks in the S&P 500 with the highest scores using consensus expected returns and six-month option-implied volatility.
Since 1999, the strategy has outperformed the S&P 500 in 71% of semi-annual periods by an average of 362 basis points. After the latest rebalance, the median stock in the basket offers nearly three times the expected risk-adjusted return of the median S&P 600 company (0.8 vs. 0.3) and trades at a lower P/E ratio (13.1x vs. 18.4x).
Source: Crystal Kim at Barron's
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