What's the best Web source for calculating stock-price volatility? -- Dennis McNell
For stocks, beta is probably the easiest volatility measure to find on the Internet.
Beta is an indicator of a stock's volatility relative to the overall market, or to a benchmark like the
. (Of course, beta is also used to gauge the volatility of mutual funds and other portfolios.) Simply, it is a measure of how much a security will rise and fall in relation to the market.
A beta greater than 1 means the security is more volatile than the overall market; a beta less than 1 means the security is less volatile. If a stock's beta is 1.2, it's 20% more volatile than the market, says Ed Keon, director of quantitative research at
. "If the market goes up 10%, the stock is likely to go up 12%," says Keon. The same goes for the downside.
The first place I would go to find a stock's beta is
Yahoo! Finance. After you pull up a quote for a single stock, click "Profile." In the statistics chart, you will find the beta for the stock. There are certainly other places you can find a stock's beta, including
So I have given you the definition of beta and told you where to find it. But actually using this volatility measure, and others such as standard deviation, isn't quite as simple. "When it comes down to it, most of these terms are most applicable when looking at a diversified portfolio," says Jeff Schwartz, a senior consultant at
. Some investors scoff at using these measures altogether, saying they are useless to the average investor.
Yet beta is an important indicator of a stock's historical volatility. "Ideally you would love to know the future volatility, but a good place to start is looking at the past volatility," says Leah Modigliani, U.S. strategist at
Morgan Stanley Dean Witter
. "Volatility isn't risk, but it is an important proxy for risk."
"Volatility isn't necessarily bad," adds Modigliani. "It is the chance of the stock going up a lot or down a lot."
Certainly, one single measure isn't going to tell you everything you need to know about a stock's risks and potential. What about a company's management, industry outlook or earnings potential? A stock's beta won't give you any insights into a company's makeup. It is a statistical way to get a quick snapshot of an investment's behavior vs. a benchmark, says Ibbotson's Schwartz. But you need to do a great deal more research and fundamental analysis beyond comparing these numbers.
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