How Is Stock Risk Measured?

The 8 Risk Dimensions

Each factor captures a different aspect of how risky a stock truly is:

• 30-day volatility — how wild the recent price swings are right now
• 365-day volatility — the long-run historical baseline for comparison
• Market beta — does this stock amplify or absorb broader market moves?
• Maximum drawdown — what is the worst this stock has ever fallen from a peak?
• News sentiment — are recent headlines leaning positive, neutral, or negative?
• Price trend — is momentum currently pointing up or down?
• Sector risk — how volatile is the industry this stock operates in?
• Valuation risk — is the stock priced aggressively relative to its earnings?

How the Factors Are Combined

Not all eight carry equal weight. Volatility and drawdown are the primary inputs — they represent direct, empirical evidence of historical price instability. Beta adds market context: a high-beta stock in a falling market is doubly dangerous. News sentiment can act as a leading indicator, often turning negative before price moves. Sector and valuation risk add forward-looking context, especially relevant in interest rate cycles.

What Each Score Range Means

The final score runs from 0 to 100:

• 0–30 (Low) — historically stable, low beta, calm volatility, positive or neutral news
• 31–60 (Medium) — noticeable price swings, typical S&P 500 behaviour
• 61–80 (High) — expect 20–40% moves; patience and a long time horizon required
• 81–100 (Very High) — extreme volatility, often in speculative or early-stage companies

Risk Score vs Financial Advice

A risk score is an educational tool — it tells you how risky a stock has been historically and appears right now, not whether you should buy or sell it. A High-risk stock is not automatically a bad investment. Tesla has had a Very High risk score for years while also delivering exceptional long-term returns for investors who could tolerate the volatility. The score helps you make an informed decision based on your own situation: time horizon, portfolio size, and personal risk tolerance.