Track 1 · Lesson 8 · 6 min
Risk, volatility and position size
Volatility, beta, the maths of losses, and how to size a position from its exit.
Risk in investing has a simple meaning: how far and how fast you could lose money. Three numbers describe it. Volatility is how much a price typically swings in a year. Beta is how much it moves with the market. Drawdown is the fall from a peak to a low.
| Name | Volatility (1 yr) | Beta | Worst drawdown since 2005 |
|---|---|---|---|
| SPYS&P 500 ETF | 13% | 1.00 | −55% |
| TLT20+ Year Treasury ETF | 9% | 0.08 | −48% |
| GLDGold ETF | 29% | 0.18 | −46% |
| AAPLApple | 24% | 1.04 | −61% |
| JPMJPMorgan Chase | 22% | 1.02 | −68% |
| NVDANvidia | 37% | 2.15 | −85% |
| TSLATesla | 45% | 1.82 | −74% |
| BTCBitcoin | 46% | 0.62 | −83% |
| HTZHertz | 99% | 1.20 | −96% |
| OPTTOcean Power Technologies | 6,304% | 16.32 | −100% |
A stock with 60% volatility can easily halve in a bad year; one with 15% rarely does. Bitcoin and micro caps swing many times more than an index fund.
Try it
The maths of losses
Losses and gains are not symmetrical.
Checkpoint
You lose 50%. What gain gets you back to even?
Half your money has to double, a 100% gain, to get back where you started.
Position size is how you control risk on any one idea. Start from the exit: decide the price at which you'd admit you're wrong, then choose how much of your account you're willing to lose if it hits. The size follows.
Try it
Size a position
The classic fixed-risk method: shares = money at risk ÷ distance to the exit.
Diversification has limits. Five stocks on the same theme (five chip makers, five banks) tend to fall together in a sell-off. Owning different kinds of businesses, and some bonds or cash, is what actually spreads risk. The Markets page shows how much the whole market is leaning on a few giants right now.
Check yourself