Volatility and Beta: How to Measure Stock Risk

Volatility and Beta: Mastering Stock Market Risk

Risk is the counterpart of returns. No risk, no gain. But understanding and measuring that risk is essential to not lose your shirt.

This article is part of our Complete Guide: How to Analyze a Stock

---

Part 1: Volatility

What is Volatility?

Volatility measures the amplitude of price variations of a stock. The more prices move, the higher the volatility.

Simplified formula:

Volatility = Standard deviation of daily returns × √252

(252 = trading days per year)

Risk Classification

Annualized Volatility	Risk Level	Examples
< 15%	Low	Utilities, Consumer staples
15-25%	Moderate	Large caps, Blue chips
25-40%	High	Tech, Biotech
> 40%	Very high	Small caps, Crypto

Implied vs Historical Volatility

• Historical volatility: Calculated from past prices
• Implied volatility: Derived from options, reflects expectations

When implied volatility > historical = Market anticipates turbulence.

---

Part 2: Beta

What is Beta?

Beta measures a stock's sensitivity to market movements.

Beta = Covariance(Stock, Market) / Variance(Market)

Interpretation:

Beta	Behavior
< 0	Inverse movement to market (rare, e.g., gold)
= 0	Independent of market
= 0.5	Moves 2x less than market
= 1	Follows market exactly
= 1.5	Moves 50% more than market
= 2	Moves 2x more than market

Real Examples

Stock	Beta	Behavior
JNJ	~0.6	Defensive, stable
KO	~0.6	Crisis resistant
AAPL	~1.2	Slightly more volatile
NVDA	~1.7	Amplifies movements
TSLA	~2.0	Very reactive to market

---

Strategies Based on Your Profile

Conservative Profile

• Goal: Preserve capital
• Target beta: < 0.8
• Volatility: < 20%
• Stock types: JNJ, PG, KO, Utilities

Moderate Profile

• Goal: Steady growth
• Target beta: 0.8 - 1.2
• Volatility: 20-30%
• Stock types: AAPL, MSFT, JPM

Aggressive Profile

• Goal: Maximum performance
• Target beta: > 1.2
• Volatility: > 30%
• Stock types: NVDA, TSLA, AMD, SHOP

---

Practical Application

Calculate Your Portfolio Risk

1. List your positions with their weight (%)
2. Get the beta of each stock
3. Calculate weighted beta of portfolio

Example:

Stock	Weight	Beta	Weighted Beta
AAPL	30%	1.2	0.36
MSFT	30%	1.1	0.33
JNJ	20%	0.6	0.12
KO	20%	0.6	0.12
Total	100%	0.93

Result: Portfolio slightly less volatile than market

Watch Out for Correlations

A portfolio with 5 tech stocks at beta 1.5 is not diversified. They'll all move together.

Solution: Our correlation matrix shows links between your positions.

---

VaR: Value at Risk

VaR answers: "What's my maximum probable loss over X days with Y% confidence?"

Example:

• Portfolio: $100,000
• 1-day VaR at 95% = $2,500

In 95% of cases, you won't lose more than $2,500 in one day.

---

Tools to Measure Risk

Portfolio Terminal

Our tool automatically calculates:

• Volatility of each position
• Portfolio beta
• Correlation matrix
• Sharpe Ratio

Analyze your risk for free

---

Conclusion

Risk management is as important as stock selection.

Remember:

1. Volatility measures movement amplitude
2. Beta measures market sensitivity
3. Adapt exposure to your profile
4. Diversify with low correlations

Also read: Complete Guide: How to Analyze a Stock in 2026

---

Check our stock analyses to see volatility and beta of 436 companies.