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 VolatilityRisk LevelExamples < 15%LowUtilities, Consumer staples 15-25%ModerateLarge caps, Blue chips 25-40%HighTech, Biotech > 40%Very highSmall 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: BetaBehavior < 0Inverse movement to market (rare, e.g., gold) = 0Independent of market = 0.5Moves 2x less than market = 1Follows market exactly = 1.5Moves 50% more than market = 2Moves 2x more than market

Real Examples

StockBetaBehavior JNJ~0.6Defensive, stable KO~0.6Crisis resistant AAPL~1.2Slightly more volatile NVDA~1.7Amplifies movements TSLA~2.0Very 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

List your positions with their weight (%)

Get the beta of each stock

Calculate weighted beta of portfolio

Example: StockWeightBetaWeighted Beta AAPL30%1.20.36 MSFT30%1.10.33 JNJ20%0.60.12 KO20%0.60.12 Total100%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:

Volatility measures movement amplitude

Beta measures market sensitivity

Adapt exposure to your profile

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 443 companies.

Volatility and Beta: How to Measure Stock Risk