Hello Tom,
Your definition of Value Line's Price Stability Index as shown in the link you provided:
"Price Stability Index—a measure of the stability of a stock's price. It includes sensitivity to the market (see Beta) as well as the stock's inherent volatility. Value Line Stability ratings range from 100 (highest) to 5 (lowest)."
The definition as shown in Value Line's software products which I subscribe to:
"Price Stability Rank — A measure of the stability of a stock's price. It includes sensitivity to the market (see Beta as well as the stock's inherent volatility. Value Line Stability ratings range from 1 (highest) to 5 (lowest)."
I believe the second definition is more likely to be the intended correct one, because the 1 to 5 ranking style is consistent with other proprietary Value Line data fields, such as Timeliness Rank or Safety Rank. However, the values shown in the software product do indeed run from as high as 100 to as low as 5.
In the software's help manual, the only other reference to price stability is in the Price Stability Rank, which Value Line says is a proprietary field. The formula used is not disclosed.
Beta, as you probably know, is a measure of a stock's volatility relative to a market index. Betas can range from a low value of 0.0 to a high value of 2.0 (or so I was instructed at one time), where a value of 1.0 represents the average stock volatility of the NYSE Composite Index. Therefore, a stock with a Beta of 1.25 is 25% more volatile than the index average, and another stock with a Beta of 0.75 is 25% less volatile than the index average.
I had also thought that Beta and Price Stability would go hand-in-hand, but sorting and examining the stocks proves my assumption would be very wrong.
My theory was that stocks with very high Betas would have a poor Price Stability Rank, and that as any given stock(s)'s Beta approached a value of 1.0, that the corresponding Price Stability Rank would be better. Stocks with very low Betas would have the best Price Stability Rank. But that's apparently incorrect. Here are some examples as food for thought. The following stocks all have a Price Stability Rank of 5:
Oxford Health Plans - Beta 1.75
Dendrite International - Beta 0.90
Donnkenny - Beta 0.45
Davox Corp - Beta 1.0
E*Trade Group - Beta 2.00
Zoran Corp - Beta 2.1
At the other end of the spectrum, these stocks all have a Price Stability Rank of 100:
Weingarten Realty - Beta 0.65
Van Kampen Bond Fund - Beta 0.5
Westcoast Energy - Beta 0.6
Interestingly enough, nearly all of the PSR 100s appear to be either real estate related, mutual fund related or utilities. Another observation is that the stocks with high PSR values might appear to be "safe" or "defensive" stocks, whereas the stocks with low PSR values appear to carry quite a bit of risk. Just an observation though...
I would guess that the Price Stability Rank field is suspect at this point, because the definition (and value range) is not compatible between the glossary and the actual field values; and also that Value Line apparently carries stocks with Betas in excess of 2.0 (which is reasonable, I guess, if a stock is greater than 100% more volatile than the index comparison)... But that's just my opinion. In all fairness, Value Line is still developing the software, and this field may represent one glitch that just hasn't been addressed (fixed) yet.
Hope this helps...
KJC |
