The main tool used to calculate stock volatality is called beta.The beta of an investment compares it to the index movement as a relative measure of risk.

A positive beta means that the stock & the index have moved in the same direction. A beta of 1 for instance means that the stock has moved exactly 1% for 1% move in the index. A beta of minus 1 means that it has moved exactly that amount in the opposite direction.

A beta of less than 1 means that it is less volatile than the market while a beta greater than 1 means that it is more volatile. A beta of +0.50 for instance, would indicate that on an average , the investments returns move half as much as the markets do in the same direction.High beta stocks are the ones most sensitive to market volatality.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s