How to Calculate Monthly Return Volatility for a Stock

by Jack Ori

The volatility of a stock is an important measure to consider if you want to invest in the stock market. If a stock's value is unstable -- in other words, if the stock keeps going up and down -- you aren't guaranteed much of a return on your investment. To determine whether a stock is a good investment, check its history. Stocks with several years of stable value or ever-increasing value are usually better investments than stocks that continually change in value.

1. Check the stock's records for the past several years. Write down the stock's monthly return on its investments for at least the past three years.

2. Add 1 to each month's return to calculate that month's volatility.

3. Calculate the standard deviation for each month's return on its investment. This is that month's volatility.

4. Multiply the monthly volatility for each month by the square root of 12, or 3.46, to determine the annual volatility for the stock.

Items you will need

  • Stock reports
  • Calculator

Photo Credits

  • Jupiterimages/ Images