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What risk level are Stockfox tips based on?

  • Updated

We categorise our tips according to three levels of risk: lower, medium and higher. Our tip risk levels are based on how much the recommended companies’ share price is expected to go up and down.

 

This is known as volatility. Typically, the higher the volatility, the riskier the investment. With higher risk tips, you get the opportunity for higher returns, but need to accept less certainty. For medium risk, the share price typically has some ups and downs and more moderate returns. For lower risk tips, the share price is typically quite stable and the returns lower.

 

 

Our risk criteria include the following:

  • The number of our 9 Key Criteria a company meets. (These criteria measure a company’s financial strength and reliability of performance).
  • Volatility of stock price. This is measured through a ratio known as Beta, which compares the extent to which a stock price moves up and down relative to the overall market.
  • Market capitalisation. The larger the capitalisation of a company, the less volatile its price and earnings tend to be.
  • Technical indicators relating to price momentum, trading volumes, moving averages and so on.

Among the metrics we use are:

Higher Risk

  • Meets 4 or fewer of our 9 Key Criteria.
  • Beta is 2.0 or above.
  • Market capitalisation is only sufficient to enable a company to be listed on a small capitalisation index, i.e. S&P/NZX Small-Cap Index (New Zealand), S&P/ASX Small Ordinaries Index (Australia), Russell 2000 Index (USA).
  • Pays a prospective dividend yield that is lower than the risk-free rate (ie: 1 year government bonds).
  • Technical indicators.

Medium Risk

  • Meets 4 to 6 of our 9 Key Criteria.
  • Beta is in the range of 1.0 to 2.0.
  • Market capitalisation is sufficient to enable a company to be listed on a mid-capitalisation index, i.e. S&P/NZX Small-Cap Index (New Zealand), S&P/ASX Mid-Cap 50 (Australia), Wilshire US Mid-cap Index (USA).
  • Pays a prospective dividend yield that is equal to the risk-free rate.
  • Technical indicators.

Lower Risk

  • Meets 7 or more of our 9 Key Criteria.
  • Beta is 1.0 or below.
  • Market capitalisation is sufficient to enable a company to be listed on a large-capitalisation index, i.e. S&P/NZX50 Index (New Zealand), S&P/ASX50 Index (Australia), Dow Jones Industrial Average Index (USA).
  • Pays a prospective dividend yield that is greater than the risk-free rate.
  • Technical indicators.

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