How to Determine Stock Volatility

Stock market volatility is synonomous with risk in finance.

Stocks are a great way to invest in the stock market. There are two main ways to earn a profit on stocks--share price appreciation and dividends. As such, some investors like to invest in stocks with share prices that fluctuate--the greater the fluctuation, or stock price volatility, the greater the possibility for profit or loss. Those investors willing to take the extra risk like to use the metric beta to compare stock price fluctuations.

Instructions

1. Identify a financial resource--a source of reliable financial advice or information. Some people pay for a financial adviser. Others have a favorite investment research site. You can also contact Investor Relations for the company you are trying to research in order to get reliable financial advice or information.

2. Request the metric called "beta" for the company from your financial resource. Beta is a measure of risk that analysts are very familiar with. It is usually reported with other stock metrics on research reports.

3. Interpret beta. A beta greater than one means the company is more volatile than an average company on the stock market. Likewise, a beta of two means the company is twice as volatile; and a beta of three means the company is three times as volatile. A beta of one means the company has volatility equal to the market and a beta of less than one means the company is less volatile than a company in the general market.

References

• The Motley Fool: Beta=Volatility