Better Beta - Risk indicator based on drawdowns

[ronnyskog]

I have tried to find a good indicator for measuring risk for individual stocks, but without much success. Beta will be high no matter if the stock rise of falls sharply compared to the market. What Im looking for is a indicator or measurement doing a better job of calculating the risk, not just the volatility. In other words, a indicator only measuring declines/drawdowns compared to averaged drawdowns for the market. Does any indicator like that exist?

 

[Rhody Trader]

I cannot think of an indicator like that off the top of my head. What kind of timeframe do you have in mind? If you are thinking short-term, maybe comparing the Average True Range for the market and the individual stock (if you normalize the readings by putting them in percentage terms) could be a useful guide.

 

[halldorpb]

If I understand you right, ronnyskog, you are looking for a method to calculate downside risk only, not just the risk of fluctuations. I agree with you that the risk of loss is the only one that matters. Ed Seykota´s Lake Ratio is one way of calculating it; alternatively, you can skip the time factor in his equation and simply divide Total declines/Max Advance. I highly recommend Seykota´s risk management article at http://www.seykota.com/tribe/risk/index.htm for further thoughts on the Lake Ratio and other ways of measuring real risk.