The sharp ups and downs in the market are referred to as volatility. Volatility is a part and parcel of the stock markets . Volatility in a way gives life to the stock markets. Had the growth paths been linear or totally predictable, the stock markets wouldn't have existed. Volatility is considered to be an ideal tool for a short-term investor to generate high returns from his portfolio. It works both ways. Emerging markets' stocks are high beta as compared to developed markets' ones.
Volatility is the rate and magnitude of change in share prices. There are two popular ways to measure volatility. One is called volatility index (VIX) and the second is called beta.
Beta is a measure of volatility of an individual stock. Beta of each stock indicates its relative risk to the index. The beta coefficient describes how the expected return from a stock is correlated to the return from the market as a whole. An asset with a beta of zero means that its price is not at all correlated with the market . That asset is independent .
A positive beta means the asset generally follows the market. A negative beta shows that the asset inversely follows the market. Here, the asset generally decreases in value if the market goes up and vice versa. Correlations are evident between companies within the same industry, or even within the same asset class (such as equity). This correlated risk, measured by beta, creates almost all of the risk in a diversified portfolio.
A beta of one represents market risk. If the beta of a stock is more than one, it is perceived as more risky than the market and if it is less than one, it indicates that the risk associated with the stock is less than the market's . A beta greater than one means the stock is more volatile than the broader market. A beta below one means it's steadier than the index.
For a stock-to-stock comparison the beta is a good tool. It will capture exceptional performances on the upside, as well as on the downside. If you have a stock that has fallen 40 percent over the past year and the index has lost nearly 20 percent in the same period, it means the stock's beta is higher than that of the index. Beta also helps keep things in perspective over the longer term.
Volatility, as measured by volatility index, is a marketwide indicator. If the markets tend to move sharply up or down, the volatility index tends to go up sharply indicating the heightened risks and nervousness of investors. VIX is a measure for the broader markets.
Volatility is the rate and magnitude of change in share prices. There are two popular ways to measure volatility. One is called volatility index (VIX) and the second is called beta.
Beta is a measure of volatility of an individual stock. Beta of each stock indicates its relative risk to the index. The beta coefficient describes how the expected return from a stock is correlated to the return from the market as a whole. An asset with a beta of zero means that its price is not at all correlated with the market . That asset is independent .
A positive beta means the asset generally follows the market. A negative beta shows that the asset inversely follows the market. Here, the asset generally decreases in value if the market goes up and vice versa. Correlations are evident between companies within the same industry, or even within the same asset class (such as equity). This correlated risk, measured by beta, creates almost all of the risk in a diversified portfolio.
A beta of one represents market risk. If the beta of a stock is more than one, it is perceived as more risky than the market and if it is less than one, it indicates that the risk associated with the stock is less than the market's . A beta greater than one means the stock is more volatile than the broader market. A beta below one means it's steadier than the index.
For a stock-to-stock comparison the beta is a good tool. It will capture exceptional performances on the upside, as well as on the downside. If you have a stock that has fallen 40 percent over the past year and the index has lost nearly 20 percent in the same period, it means the stock's beta is higher than that of the index. Beta also helps keep things in perspective over the longer term.
Volatility, as measured by volatility index, is a marketwide indicator. If the markets tend to move sharply up or down, the volatility index tends to go up sharply indicating the heightened risks and nervousness of investors. VIX is a measure for the broader markets.
When the markets are rangebound or have an upward bias, the market participants' positive views are reflected in the increased buying of call options compared to put options. This keeps the volatility index at lower levels. On the other hand, if the markets are trading with a negative bias, the buying of put options increases and that reflects in higher readings in the volatility index.
Higher readings indicate higher risk. The volatility index indicates by how much the underlying index could change in the near term based on the order books of underlying options. India VIX, based on Nifty 50 option prices, measures volatility in the domestic markets.
VIX is a measure of implied volatility in trading of securities. The index is calculated using a formula that considers a large number of option strike prices. Volatility is the extent to which the price of something has changed over a period, measured as a percentage . The VIX is said to measure market sentiments, or, more interestingly, to indicate the level of anxiety or complacency in the market . It does this by measuring how much people are willing to pay to buy.
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