Measures of Portfolio Risk and How You Can Apply Them

by James B. Cloonan

I have often discussed the concept of risk in this column. Most often, I have analyzed the various measures of risk and looked at their strengths and weaknesses.

While there may be better measures of risk than the ones in common use, if you are an individual investor you are really limited to popular measures if you want to be able to make useful comparisons.

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Beta, which is still used frequently, is a measure of volatility compared to the volatility of a market index—a beta of 1.0 indicates that the stock is equally as volatile as the market, while a beta greater than 1.0 indicates that the stock is more volatile and a beta less than 1.0 indicates that the stock is less volatile than the overall market.

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