Difference Between Beta Deviation and Standard Deviation

Beta Deviation is variability in price. In other words, Beta is used to measure a fund’s volatility related to other funds. While, Standard Deviation, on the other hand, is a statistical tool that too reports a fund’s volatility.


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Key Takeaways

Beta Deviation vs Standard Deviation

The difference between Beta and Standard Deviation is that Beta Deviation measures the risk of a market as a whole, whereas the Standard Deviation method tends to measure the risks created on individual stocks.

Beta Deviation vs Standard Deviation

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The measurement of a stock price which is related to the changes in the entire stock market is measured through Beta deviation. For those who do not know what measurement of volatility means: well, it is a statistical measure scattering of returns for a particular security or a marketing index.

Simply saying, if you measure higher volatility in a security or a marketing index then that means the risk is high too, and lower volatility indicates lower risks. But, in most cases we see the higher volatility-higher risk situation happen.

Comparison Table

Parameters of ComparisonBeta DeviationStandard Deviation
DefinitionBeta Deviation is a tool for people to measure the volatility of a stock which is related to the market as a whole.A Standard Deviation is a method for calculating the risks of stocks individually.
MeasurementThe total volatility is measuredOnly the total risk is measured
IndicationWhen a calculation shows a beta greater than 1.0 then it means it is showing greater volatility than the overall market. A Beta when lower than 1.0 indicates less volatility.When the standard deviation is high then it indicates higher risk.
Low Beta/Standard DeviationWhen the beta is measured and found out to be low then it means increase in risk in the investments when the markets are high.The standard deviation provides modest returns with lowered risks when lower standard deviation happens.
PurposeThe purpose of measuring is to understand the unreliability or scattering of cash flows.The purpose of Standard deviation is to measure the volatility of funds that are related to other funds.

What is Beta Deviation?

Beta is a measuring method to measure the risk involved in an individual asset which is related to the market portfolio. The aim is to measure the sensitivity involved in the marketing movements. In other words, it is the measurement of the fund’s volatility relation to other funds.

Let’s take an example in the case of stocks: Beta Deviation can be calculated by comparing the returns of the stocks to the returns of a stock index such as S&P 500, FTSE 100.

The primary aim of the comparison allows an investor to monitor the performance of a stock comparison with the whole market’s performance.

Therefore, Beta measures the movements of stock prices, and then it relates to the changes in the whole stock market.

A beta value indicating 1 means that is much volatile and shows that the performance of security is in line with the performance of the whole market and on the other hand, a beta value showing less than means it is less volatile.

beta deviation

What is Standard Deviation?

Standard Deviation is a statistical measure that is used widely all over the world to measure a fund’s volatility. When it comes to measuring the volatility of an individual stock or a single stock then Standard Deviation is used.

The standard deviation of returns decides the standard deviation of a stock portfolio for every single stock along with the connection of returns between each set of stock in the particular portfolio. An increase in standard deviation indicates higher volatility and the risks involved along with it.   

Riskier financial security will show a higher standard deviation in contrast to stable financial security or investment funds.  To obtain a standard deviation one needs to scale the standard deviation of one market in opposition to another.

With the help of standard deviations investors can come up with precise data and meaningful conclusions. The prices that are moved with the increased standard deviations shows strength and weaknesses.

standard deviation

Main Differences Between Beta Deviation and Standard Deviation

  1. Both Beta and Standard deviation methods are used for calculating the risk in an investment portfolio. The only difference between them is that beta deviation measures the volatility of a stock as a whole whereas a Standard deviation calculates the risks of a stock individually.
  2. Beta Deviation measures the performance of a portfolio or security in relation to the movements in the market.
  3. The risks of returns are calculated in standard deviation. This means that increase in standard deviation is an increase in risk involved in a particular investment.
  4. A beta value showing a value more than 1 means that the security is performing in line with the performance of the market. Whereas when a beta value is less than 1 then the performance of the security is less volatile in the market.
  5. Standard deviations are mostly associated with more risks.
  1. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3487226/
  2. https://www.ncbi.nlm.nih.gov/pmc/articles/pmc4452664/
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