Using Risk Grades with my Screens

I was introduced to the RiskGrades website when I was following the Stock Superstars newsletter that AAII offers. Riskgrades are proprietary calculations that analyze volatility. A grade is given for the general market and you can compare individual stocks or even a portfolio against the risk of the market. You can measure the "Risk Impact" of adding or deleting a particular stock to or from your portfolio.

Another interesting tool that I use is the Return Grade measure which looks at the risk of stock and compares it to the return of the stock over a given period of time. The stock is given a "grade" based on its risk vs its return. I like to plug in my list of stocks from a screen and see what stocks have the highest return grade because it sometimes gives me a different perspective on the screen list.

A couple of years ago (when I was even more dumb than I am now) I followed some portfolios that picked out the top 10 "Return Grade" stocks from the list in my screens. I saw some pretty amazing returns for about 5 months, but month 5 was awful so I assumed that the idea was worthless.

So now I am revisiting the idea because I think it has merit. I started paper trading (I don't take commissions or spreads into account) the concept again in October of 2006. I chose to pick the top 5 "Return Grade" stocks from the Zweig screen (as provided by AAII) and the return over the last 6 months has been 39%.