How safe are Blue Chip stocks?

[lastlib]

9. Some statistical guidance*:

(*to be taken with the usual grain of salt...)

An investment's "safety" is really a function of its *risk*--"risk" being defined in the investment world as the *probability of loss*. To get an estimate of an investment's risk, a good place to start is with its basic MPT (Modern Portfolio Theory) statistics:

--Sharpe's Ratio, the comparison to the 90-day T-Bill, the theoretical "risk-free" investment.

--Beta, a measure of its volatility, ie, how much does it fluctuate relative to an index like the S&P500 (the preferred index for large-company stocks) or the NASDAQ Composite (a gauge for medium- to small-company stocks).

--R^2 (R-squared), a measure of how much of the asset's movement relative to an index is "explained" by the movement of the index itself. In short, this tells you how sensitive the asset is to the movement of the market as a whole.

--Price/Earnings ratio tells you how many periods (years) it would take for the company's earnings to repay the purchase price of the stock. Lower P/E ratios imply that the company has better earnings relative to its price, so it could in theory "repay" its price more quickly than a company with a higher P/E ratio. This is greatly simplifying it, and you might want to dig a little deeper into understanding it.

There are others, but these give you a good place to start in evaluating an investment. Find more info here:
https://www.investopedia.com/financial-term-dictionary-4769738