[janus67]

my impression is that Beta can be used as a measure or test of Volatility but Metastock doesn't provide any explanation of how to use it at all -- just the formula ( periods ) ???
even Wickipedia says nothing and there's nil formulas or explanations that I could find
I would appreciate it if someone could explain perhaps more how it could be used
I had in mind to use it in an Exploration to find high beta stocks and rank them ie highest to lowest etc

or would some other measure of volatility be better, more useful etc ?

thanks Keith

[ppapp]

Using Google and entering "Beta as a measure of volatility" in the search bar yields 2,340,000 results.
Here's three links;
http://www.investope...s/04/113004.asp
http://www.money-zin...and-Volatility/
http://en.wikipedia..../Beta_(finance)


Using Google and entering "Beta as a measure of volatility in metastock" in the search bar yields 4810 results.
Here's one link;
http://trader.online...a_and_Beta.html

[Siligard]

janus67, on 02 February 2010 - 04:16 AM, said:

my impression is that Beta can be used as a measure or test of Volatility

Keith, the beta for a tradable is always in relation to a market index (or another tradable) and measures how much larger the average % movements of the tradable are with respect to the average % movements of the index. A beta of 2 means that a 3% increase in the index is related to a 6% increase (beta x 3%) in the tradable and a 5% decrease in the index is related to a 10% decrease in the tradable. In this regard, the beta actually measures how much more volatile a tradable is with respect to (and in relation to) a market index. In effect, a tradable may have a low beta not because it has low volatility but because it is not as volatile as the market index. Is relative volatility what you want?
Giorgos

This post has been edited by Siligard: 02 February 2010 - 05:46 PM

[JohnathanStein]

Keith, try this:

Indicator Name: _Beta SPX

IND:=Security("\MetaStock Data\INDEX\.SPX",C);
Periods:=Input("Periods",1,250,21);
((Periods*Sum(ROC(CLOSE,1,%)*ROC(IND,1,%),Periods))-
(Sum(ROC(CLOSE,1,%),Periods)*Sum(ROC(IND,1,%),Periods)))
/
((Periods*Sum(Pwr(ROC(IND,1,%),2),Periods))-
Pwr(Sum(ROC(IND,1,%),Periods),2))

In an Exploration, put this in Column A:

Fml("_Beta SPX")

For Securities, select all in the "S&P500" folder. When the Exploration is done, you can sort by clicking the top of ColumA.

An alternative is to put a condition in the Filter column instead:

Fml("_Beta SPX")>=2

--Johnathan

[janus67]

thanks all for your help
ppap -- I actually did look on Trader.online and other Metastock code sites before I asked this question here but found nothing-- I'll look at your suggestions

Siligard --I note your comment re a reason for low volatility-- if the index has low vol, can make many look good
but if the index has higher vol, wouldn't this mean that say the top 50 stocks which move the index would also have a higher volatility
I guess you have to measure against " something "
my impression is if you want to measure against a stock or index, Relative Strength is prob best and rank them
also, eyeball the result of the scan

can you compare stocks to each other? as an alternative way
all I'm trying to do is to narrow down a list of movers
I'm certainly open to opinions as to the best way to achieve this

Johnathan -- thanks also-- what would you use as the IND ( indicator ) here -- MACD , a 20MA ??

[JohnathanStein]

janus67, on 03 February 2010 - 09:54 PM, said:

Johnathan -- thanks also-- what would you use as the IND ( indicator ) here -- MACD , a 20MA ??

I don't understand your question -- "IND" is the S&P500 Closing price, used to calculate Beta. It was adopted from the Metastock formula, so it could be used in an Exploration, rather than just on a chart.


--Johnathan

[Siligard]

janus67, on 03 February 2010 - 08:54 PM, said:

Siligard --I note your comment re a reason for low volatility-- if the index has low vol, can make many look good but if the index has higher vol, wouldn't this mean that say the top 50 stocks which move the index would also have a higher volatility I guess you have to measure against " something "

If you want to concentrate on the stocks with the higher volatility against an index, using beta would probably offer significant help. If however you use a specific trading approach which requires a minimum level of volatility in the stock then beta is not appropriate. Using standard deviation in the stock itself as a gauge of volatility suits way better in the latter case. You can also play with other more technical gauges of volatility such as Average True Range (ATR) and see if they satisfy your needs. Another issue you must be aware of is that high volatility in % daily changes does not necessarily mean strong directional movement. For example, a stock that goes 3% up each and every day looks volatile in the chart but in terms of % changes each day its volatility is zero. If you perception about volatility has to do with strong directional movements then you should measure the volatility in the price itself, not its % changes.
Giorgos

This post has been edited by Siligard: 04 February 2010 - 06:20 AM

[janus67]

Johnathan -- that was a "duh" moment-- sorry guess I didn't think properly on that

Siligard " If you perception about volatility has to do with strong directional movements then you should measure the volatility in the price itself, not its % changes."

I couldn't put it better -- that's what I meant but couldn't put it into words.
the ability to measure each stocks propensity to have strong directional movement
I had in mind to measure each stock and rank them
from memory, ROC has the ability to use $ or % , can't think of any others just now
therefore, would ROC or ROC of MACD possibly give the desired result

thanks Keith

[JohnathanStein]

Siligard, on 04 February 2010 - 07:16 AM, said:

Another issue you must be aware of is that high volatility in % daily changes does not necessarily mean strong directional movement. For example, a stock that goes 3% up each and every day...

Giorgios -- Would that be time-frame dependent?

According to http://www.money-zin...and-Volatility/:

Quote

Most of the time beta values are calculated using the month-end stock price for the security you're examining and the month end closing price of the S&P 500 Index ($INX).

Off the cuff, do you think directionality would be a safe assumption, if he ran a high beta Exploration on a Monthly basis, then saved the list and ran a Daily scan for direction and signal (ie: ADX)?

--Johnathan

[Siligard]

JohnathanStein, on 04 February 2010 - 07:24 PM, said:

Giorgios -- Would that be time-frame dependent?

I don't get what you mean Johnathan.

JohnathanStein, on 04 February 2010 - 07:24 PM, said:

Off the cuff, do you think directionality would be a safe assumption, if he ran a high beta Exploration on a Monthly basis, then saved the list and ran a Daily scan for direction and signal (ie: ADX)?

The calculation of beta can be based upon any time frame and yes many use monthly prices.

For a long-time-frame beta I believe it makes more sense to use weekly closing prices rather than monthly to calculate the beta since on the one hand by the time you will have enough monthly data to calculate a solid beta, the company itself (or the general economic conditions and trends) may have changed character thus strongly affecting its future beta and on the other hand, the end of the week is significant not only because the week is a common measurement of time (like day, month, year) but also because from Friday to Monday no trading takes place. For the monthly closing prices to be such significant they should be followed by 10 non trading days. In defense of the monthly closing prices one should nevertheless argue that a lot of accounting issues take place on a monthly basis.

Anyway, it is my perception that from a trading standpoint it makes more sense to use weekly or daily data to calculate beta unless your trading profile is not really trading but rather hardcore multi-year investing in hardcore dinosaur stocks like some hardcore investing funds do. Keep in mind though that decade after decade different economic events (oil crisis, tech boom, credit crisis etc) hurt or benefit specific stocks or sectors in a very different way and have a dramatic impact on their long-term-based beta.

Giorgos

This post has been edited by Siligard: 05 February 2010 - 05:10 PM

[janus67]

following on
I had in mind to use weekly data & see how it worked --maybe then look at the scan result on daily

Siligard -- I must admit I'm a bit confused
if Beta is a measure of eg a stock against eg an Index-- that's what Relative Strength Comparison also does too
would one give a better result for measuring strong directionality than the other?

"you should measure the volatility in the price itself, not its % changes"
how would I go about this please?

[Siligard]

janus67, on 05 February 2010 - 07:45 PM, said:

I must admit I'm a bit confused if Beta is a measure of eg a stock against eg an Index-- that's what Relative Strength Comparison also does too would one give a better result for measuring strong directionality than the other?

Beta measures how much -on average- a % change in an index (independent variable) is magnified or shrunk to give a % change in the stock (dependent variable). If beta is 2 then a 5% increase in the price of the index is expected to result in an average 2x5% (that is 10%) increase in the price of the stock.

According to the classic definition, the Relative strength of a stock with respect to an index for a period of say 1 year compares the % change of the stock for the year with the % change of the index in the same year. You need only the prices of both stock and index now and 365 days ago (total 4 numbers) to compute the relative strength.

janus67, on 05 February 2010 - 07:45 PM, said:

"you should measure the volatility in the price itself, not its % changes" how would I go about this please?

To start your study here are two suggestions that come in mind: standard deviation of the stock price and ADX

Giorgos

[Siligard]

Ehm... sorry Keith, I forgot to answer your questions more specifically.

With respect to "Relative Strength (RS) vs beta" question I think beta is more appropriate for you than the RS since the latter shows the bullish strength of a stock in relation to the index. in other words, if the index falls but the stock remains still then the RS of the stock will be high which is not what you want.

Regarding the measurement of volatility in the price itself, using the coefficient of variation (CV) of the price (which is the standard deviation of the price divided by the arithmetic mean) for a period will be useful. The Wilder's ADX will also be useful (as you said, your aim is to isolate strong directional movements either bullish or bearish). Check both the CV and the ADX with various periods and see which one satisfies your needs.

In short, I think the CV and the ADX are better than the beta or the RS for you and yes, both the CV and ADX can be used to rank stocks in a Metastock Exploration.

Giorgos

[janus67]

Thanks Siligard for your concise explanation of the merits of both methods
I'll move on to some exploration work