Calculating Stock Risk - Standard Deviation and Beta

Question 1

What are the two ways to calculate risk (volatility)?

Answer 1

Standard Deviation and Beta

Question 2

What is the difference between Standard Deviation and Beta in terms of when they are used?

Answer 2

Standard Deviation is for mutual funds where stocks are beta

Question 3

Define Standard Deviation

Answer 3

Variance measure (Hi/Low) over time
Example:
- 12% Average Annual Return
- Range 8% - 16%
- Standard Deviation = 4%

Looks to compare against itself with it’s stocks

Question 4

Define Beta

Answer 4

Volatility compared to an index

• Beta of 1.0 matches index/benchmark
• Beta of > 1.0 More volatility/risk index
• Beta < 1.0 Less volatility / risk to index