Checklist for Market Risk Management

Checklist for Market Risk Management – Beyond the Stock Price

When you open the stock price page in any financial newspaper, don’t just stop at the last traded price. A solid checklist for market risk management means looking deeper into multiple data points that can help you make informed decisions. Here are 6 things you must check on the stock price page beyond the closing price.

Table of Contents

1. Checklist for Market Risk Management – Beyond the Stock Price
2. 1. Stock prices versus yearly highs and lows
3. 2. Valuation test with P/E, P/BV, and Dividend Yield
4. 3. Check for volumes and volume trends
5. 4. New stories with new highs and lows
6. 5. Weekly and monthly gainers and losers
7. 6. A quick look at futures prices and OI

1. Stock prices versus yearly highs and lows

Most stock pages cover open price, day high, day low, and close price, with some also showing VWAP. This gives you an idea of the short-term bias of the stock. However, for better market risk management, also check the price against its 52-week high and low. This shows whether the momentum is in favour of the stock. In a trending market, strong momentum stocks trade closer to their 52-week highs.

2. Valuation test with P/E, P/BV, and Dividend Yield

These are quick ratios to assess if the stock is undervalued, overvalued, or fairly valued.

• P/E Ratio: High-growth companies with strong ROE often have higher P/E. Compare it with the company’s growth rate and peers.
• P/BV: More relevant for banks and capital-intensive sectors.
• Dividend Yield: Yields above 4% can act as a cushion in volatile markets.

3. Check for volumes and volume trends

Volumes reflect how actively a stock is traded and help confirm price moves. A rise in price with high volume is bullish, while a price drop with high volume is bearish. For mid- and small-cap stocks, the number of shares traded is more relevant than value. Watch for sudden spikes as they may indicate speculation.

4. New stories with new highs and lows

Beyond 52-week highs and lows, watch for historic highs and lows. These often occur when strong momentum is backed by a fundamental trigger, possibly signalling a re-rating of the stock. Consistent new lows may suggest deep trouble.

5. Weekly and monthly gainers and losers

Look at stock performance across multiple time frames like 1 week, 1 month, and 6 months. Consistent outperformers or underperformers show where short-term momentum lies. This is useful for traders and also offers long-term investors a lead indicator.

6. A quick look at futures prices and OI

This is possible for the 190-200 stocks where F&O is permitted, but that is good add-on data. Futures are normally at a premium, but any divergence is an early warning signal. Accumulation is studied based on open interest or OI. Like volumes, OI underlines price trends. Rising prices with rising OI are a sign of aggressive accumulation while rising prices with falling OI are a sign of short covering. Similarly, falling futures prices with rising OI indicate short build-up while falling futures prices with falling OI indicates short covering. So, the next time you open the stock price page, look beyond just the prices.