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Stock Risk Definition, Types and Quiz

To gain a comfort level here requires an understanding of Statistics; including, single- and multi-variable linear regression.
  1. Define - Learn different types of stock risk.
  2. Context - Use stock risk in a sentence.
  3. Quiz - Test yourself.
face pic by Paul Alan Davis, CFA
Updated: February 18, 2021
Here we start with a high level understanding of where each type of risk is applied.

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Understanding Stock Risk Analysis


Stock Risk is a general term for the variability of returns associated with a common stock traded on exchanges.

The two most common absolute measures are variance and standard deviation. So each stock has its own variance and standard deviation. The units of variance are in returns-squared, so it isn't as interpretable as standard deviation.

On the other hand, stock risk can also be measured relative to other stocks with covariance and correlation. For risk forecasting and performance attribution applications stock risk is decomposed into specific risk and systematic risk.

Synonym: stock variability

For context, there are certainly more complex measures of stock risk when utilizing a single-factor or multi-factor regression, including beta, factor exposures, systematic risk and specific risk, but the four mentioned above get you most of the way there.

Remember variance and standard deviation are the same, except the latter is the square root of the former. Similarly, covariance and correlation are related, but the math for the latter here is a bit different. Correlation is covariance divided by the product of the standard deviations for the two stocks.

R-Squared is correlation squared, and is an easy way to interpret the relationship between two stocks, or any two investments for that matter. It's scale is from 0 to 1.

In a Sentence

Bev:  I'm amazed that four stock risk measures all start with demeaned returns.
Ann:  Yes, it's a powerful concept hidden behind a bad name.


Many terms have 4-5 minute videos showing a derivation and explanation. If this term had one, it would appear here.

Videos can also be accessed from our YouTube Channel.

Video Script

If this term had a video, the script would be here.


Click box for answer.

Each individual stock has a variance and standard deviation, while each pair has a covariance and correlation coefficient. | True or False?


If a stock has a standard deviation of 16% annually, what is the variance? | 0.1250 or 0.0256 or 0.4000?

0.256 in units of returns-squared.

Questions or Comments?

Still unclear on Stock Risk measures? Check out the Quant 101 Series, specifically Four Essential Stock Risk Measures.

Related Terms

Our trained humans found other terms in the category investing concepts you may find helpful.

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stock variability
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stock co-movement
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