According to the article, why is it more useful to look at the percent change of a stock price, rather than the change in dollar amount?
Question: According to the article, why is it more useful to look at the percent change of a stock price, rather than the change in dollar amount?
According to the article, there are two main reasons why it is more useful to look at the percent change of a stock price, rather than the change in dollar amount:
- It allows you to compare the performance of different stocks, regardless of their price. For example, if a $10 stock goes up by $1, that is a 10% increase. However, if a $100 stock goes up by $1, that is only a 1% increase. By looking at the percent change, you can see that the $10 stock is actually outperforming the $100 stock.
- It allows you to track the volatility of a stock's price. Volatility is a measure of how much a stock's price fluctuates over time. A stock with a high volatility is more likely to experience large price swings, both up and down. A stock with a low volatility is less likely to experience large price swings. By looking at the percent change of a stock's price over time, you can get a good sense of its volatility.
Here is an example of how to use percent change to compare the performance of different stocks:
Stock A has a price of $10. Stock B has a price of $100.
Stock A goes up by $1. Stock B goes up by $1.
Percent change of Stock A: 10% Percent change of Stock B: 1%
As you can see, Stock A is outperforming Stock B, even though Stock B went up by a higher dollar amount.
Percent change is also a useful tool for tracking the volatility of a stock's price. For example, if a stock's price fluctuates by 5% or more on a regular basis, that is a sign that it is a volatile stock. If a stock's price typically fluctuates by less than 1%, that is a sign that it is a less volatile stock.
Overall, percent change is a more useful metric than dollar change for comparing the performance of different stocks and tracking the volatility of a stock's price.
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