Beta Deviation vs Standard Deviation: Difference and Comparison

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 reports a fund’s volatility.

Key Takeaways

  1. The beta deviation measures the volatility of a stock or portfolio relative to the overall market. In contrast, the standard deviation measures the dispersion of data from its average value.
  2. The beta deviation is used to assess the risk of a stock or portfolio, while the standard deviation is used to assess the variability of data.
  3. While both measures are used in finance and statistics, their purpose and interpretation differ.

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

Simply saying, if you measure higher volatility in a security or a marketing index, 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 a stock’s volatility 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, it shows 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 to be low, then it means an increase in risk in the investments when the markets are high.The standard deviation provides modest returns with lowered risks when a 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 related to other funds.

What is Beta Deviation?

Beta is a measuring method to measure the risk involved in an individual asset related to the market portfolio. The aim is to measure the sensitivity involved in marketing movements. In other words, it measures the fund’s volatility about 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 the S&P 500 or FTSE 100.

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

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

A beta value indicating 1 means that it is much more volatile and shows that the security performance is in line with the performance of the whole market. 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 measuring the volatility of an individual or a single stock, then Standard Deviation is used.

The standard deviation of returns decides the standard deviation of a stock portfolio for every 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.   

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

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 show strengths and weaknesses.

standard deviation

Main Differences Between Beta Deviation and Standard Deviation

  1. Beta and Standard deviation methods calculate an investment portfolio’s risk. 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 about the movements in the market.
  3. The risks of returns are calculated in standard deviation. This means that an increase in standard deviation increases the risk involved in a particular investment.
  4. A beta value showing a value of 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, the market’s security performance is less volatile.
  5. Standard deviations are mostly associated with more risks.
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References
  1. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3487226/
  2. https://www.ncbi.nlm.nih.gov/pmc/articles/pmc4452664/

Last Updated : 11 June, 2023

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25 thoughts on “Beta Deviation vs Standard Deviation: Difference and Comparison”

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