How Do You Check Stock Volatility?


Quick Answer

Standard deviation is the traditional calculation used to determine the volatility of stocks, explains Investopedia. The calculation for standard deviation is the square root of the average squared deviation of the data from its mean. However, data for the standard deviation calculation must assume a normal distribution.

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Full Answer

Volatility measures the dispersion of returns for securities or market indexes, states Investopedia. The common definition for "volatility" is the amount of risk or uncertainty about changes in the value of securities. Higher volatility stocks have the potential to change in value dramatically over short periods of time. Lower volatility stocks generally do not fluctuate dramatically and remain steady over time.

Another measure of volatility compared to the market is a stock’s beta, according to Investopedia. The beta measures the volatility of stocks against certain benchmarks, such as the S&P 500. Beta uses the returns of stocks compared to the returns of the benchmarks. The S&P 500 is the most common benchmark used to determine beta. For example, stocks with beta values of 1.1 usually move 110 percent for every 100-percent move in the S&P 500. Conversely, stocks with beta values of 0.9 move 90 percent for every 100-percent move in the S&P 500.

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