Activision Blizzard stock: Video games can be too exciting

— -- A: The idea of investing in Activision Blizzard probably popped into your head while flipping through your video-game collection.

Activision Blizzard publishes some of the most popular video games, including Guitar Hero and Tony Hawk and the acclaimed Call of Duty series. The company's Modern Warfare 2 war simulation, due out this year, is one of the most anticipated titles in years. It's a follow-up to Call of Duty 4: Modern Warfare.

Meanwhile, the company controls a number of online games, including Warcraft. Online games are attractive for video game publishers because users pay recurring fees to play and are extremely loyal. If you're interested in following video-game trends, you should check out USATODAY.com's video-game community, Game Hunters at gamehunters.usatoday.com.

But does all this mean Activision is a good play for investors? To find out, I put the stock through the four tests considered at Ask Matt:

Step 1: Risk vs. reward. When you take a risk on a stock, you want to make sure you're properly rewarded. Downloading Activision's trading history back to 1993, we see the company generated an average annual compound rate of price appreciation of 31%. This is an extremely high return; the S&P 500 posted a 6.6% annual return in the same time frame, says IFA.com.

But here's the rub: If you owned Activision, you accepted higher risk — standard deviation — of 61 percentage points. That's much higher than the 15.1 percentage point risk of the S&P 500 during the period. So to get a 370% higher return you accepted 307% higher risk. But the risk-return is almost in balance.