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Standard deviation and beta are both used to measure the risk of a stock. Explain each...

Standard deviation and beta are both used to measure the risk of a stock. Explain each measure- what does it mean and how is it calculated? Which measure would you recommend for a well-diversified investor? Why?

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Answer #1

Standard Deviation is the dispersion of the returns from the mean. This represents the standalone risk of stock.
Standard Deviation =((Return-Mean)^2/(n-1))^0.5

Beta represents the market or systematic risk of stock,It represents the correlation of stock with the market.
Beta =Covariance of Stock with Market/Standard Deviation of Market

I would use beta as an investor. Because for a well diversified investor beta is better and its helps in diversifying a portfolio which can withstand recession and also privide decent returns during boom

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