How should you assess the risk of a 12-month stock price movement?

• A. Look at average price
• B. Dividend yield
• C. Consider volatility and momentum
• D. Market cap

Answer: (C)

Assessing the risk of a 12-month stock price movement comes down to understanding how much the price could swing and how likely those swings are to continue. Volatility measures how widely returns are dispersed around the average, so with higher volatility you face bigger potential moves in either direction over the coming year, which increases risk. Momentum looks at the strength and persistence of the current price trend—if a stock has strong positive momentum, prices often continue moving in that direction for a period, affecting the probability of where the price goes over the next year.

Using both together gives a fuller picture: volatility tells you the potential magnitude of moves, while momentum informs how likely those moves are to persist. Static metrics like average price don’t capture how much the price can swing, dividend yield concerns cash flow rather than price paths, and market cap indicates size or liquidity but not the probability or extent of price changes.