Question

Look at the picture comparing the returns for Tesla (TSLA) and S&P 500 (^GSPC). It's obvious that the return volatility (i.e. standard deviation) of Tesla stock is at least 10 times greater (that's 1,000%!) than that of S&P 500.

Yet, if you look up Tesla's beta (on the summary page of Yahoo Finance) is only slightly more than one (1.2) suggesting that TSLA is only about 20% as volatile as the market. How do you explain this discrepancy between what standard deviation tells you (that TSLA is extremely risky) and what beta tells you (that the stock is just a little bit more risky than the market (SP500)?

Answer 1

-Standard deviation is a measure of dispersion of a set of data from its mean.It represents the absolute variability of a distribution. Higher the standard deviation , means higher the variability and greater will the magnitude of the deviation from its mean of Average value.

-In terms of return from a stock Standard deviation represents the variability of the return from its Mean return. Generally Standard deviation is used as a risk assessment tool .Higher Standard deviation means more variability and more variability means more risky. Hence TSLA stock return having Higher Standard deviation is tends to higher risk.

-Beta measures the responsive ness of a stocks price to changes in the over all stock market.

= 1	Stock is exactly as volatile as market
> 1	Stock is more volatile by market
< 1	Stock is less Volatile than market
= 0	stock is uncoreleted to market
< 0	Stock is negatively co related

-TSLA stock has beta of 1.2. It means it is 20% more volatile than Market(S&P500). For Example IF s&p500 is expected to move by 10% then TSLA Stock will move up by (10%*1.2) 12%. IF s&p500 is expected to Down by 10% then TSLA Stock will move down by (10%*1.2) 12%. Positive Beta represents less risky assets or stock.