I'm asking for all securities traded like ETFs, but I'll exemplify with stocks. Ford is trading at around $4, GM $16, MSFT $142.

Suppose that the same horrific Systematic Risk besets each 3 stocks. NASDAQ and NYSE stocks must be priced at least$1 per share. Doubtless, GS and MSFT can afford to drop further, but F can't as it's almost $4 already!

  • 3
    It tells you that Ford is unlikely to drop by $5.
    – user253751
    Mar 19, 2020 at 16:20

3 Answers 3


After the Twice Edited Question

No. Stocks can always reverse-split in order to avoid the below $1 delisting rule of NYSE. (The $4 minimum is only for initial listing, not ongoing listing). Price is only one of the criteria for delisting. There are other criteria such as Market Cap.

As others pointed out, price is an arbitrary paramter in the Price x Shares = Market Cap relationship. The absolute value of Price cannot be used to predict the maximum downside.

After the Edited Question

The answer is: On Average, Stocks with lower price per share are more volatile, but price is not a good predictor.

Here is the plot of 4900 US stocks:

enter image description here

Before the Edited Question

No. Volatility is measured in standard deviation of percentage change or logarithmic return.

Furthermore, the effect of Systematic Risk on those 3 stocks depends of Multi-Factor Model Beta of each stock.

Perform Linear Regression of Stock Return = Alpha + Beta1 x Systematic Risk + Beta2 x Market Risk to get Beta1.

P.S. Some say that a stock of $0.01 could not drastically go any lower. The next day, the stock became $0.005.

  • Thanks for your edits! Sorry for the hassle. I had to edit my mistakes.
    – user10763
    Mar 20, 2020 at 14:00
  • What's with the weird vertical line under the main cloud of points?
    – AakashM
    Mar 20, 2020 at 15:36

No, price by itself actually tells us nothing about the risk of the underlying business.

Consider 2 companies: each owns a single factory that produces goods worth, say, $1M of profit in a year. Let's say that an income stream of $1M / year. Let's say that income stream is about as risky as the stock market in general, and let's assume the current cost of risk in the market is such that returns are ~10% per year. This means that to earn $1M per year, a 'fair' risk-adjusted value of the company would be $10M.

Now assume company A has 1,000,000 shares outstanding, and company B has 50,000 shares outstanding. Company A shares would be $10 each, and company B shares would be $200 shares each. A 10% drop in value could happen to each equally, because the underlying business is identical.

Note that Base64's great answer shows that actually, typically companies with lower prices are more volatile - and this has to do with social factors around what price company stock is often set at - typically "penny stocks" (trading for Under $1 per share) are new ventures that are not proven yet - but this is not really something necessarily true, just something that often happens due to expectations.

  • Thanks! Doesn't your last para. mean that a security's price CAN affect how low it can further drop?
    – user10763
    Mar 20, 2020 at 3:58
  • 1
    @Greek-Area51Proposal A more complete answer would be quite a bit longer - I would focus on my first sentence here, that price does not necessarily reflect the underlying business, because the amount of shares issued by a company is somewhat arbitrary - 2 identical business can have different share prices if a different number of shares exist. On top of that, any bias that does exist is opposite to what you suspected - that is, lower priced stocks may be are riskier than higher priced stocks, because of expectations when prices are set. But don't rely on that, look at the first sentence. Mar 20, 2020 at 13:11
  • Thanks again. For clarity, can you please edit your post to incorporate your comment?
    – user10763
    Mar 20, 2020 at 14:01

Are you aware of "Reverse Splits"? Ford can merge 10 shares into one, making each new stock worth approximately $40. It's perceived as a bad event, because it tells potential buyers that Ford itself doesn't expect a rebound above $4. But the alternative (delisting) is probably worse.

You must log in to answer this question.