How Does CymaBay Therapeutics, Inc. (NASDAQ:CBAY) Affect Your Portfolio Volatility?

If you own shares in CymaBay Therapeutics, Inc. (NASDAQ:CBAY) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the market.

Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that ‘Volatility is far from synonymous with risk’, beta is still a useful factor to consider. To make good use of it you must first know that the beta of the overall market is one. A stock with a beta below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.

Check out our latest analysis for CymaBay Therapeutics

What does CBAY’s beta value mean to investors?

Given that it has a beta of 1.23, we can surmise that the CymaBay Therapeutics share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that CymaBay Therapeutics shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see CymaBay Therapeutics’s revenue and earnings in the image below.

NasdaqGS:CBAY Income Statement, November 18th 2019
NasdaqGS:CBAY Income Statement, November 18th 2019

How does CBAY’s size impact its beta?

CymaBay Therapeutics is a noticeably small company, with a market capitalisation of US$372m. Most companies this size are not always actively traded. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

What this means for you:

Since CymaBay Therapeutics tends to moves up when the market is going up, and down when it’s going down, potential investors may wish to reflect on the overall market, when considering the stock. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as CymaBay Therapeutics’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Future Outlook: What are well-informed industry analysts predicting for CBAY’s future growth? Take a look at our free research report of analyst consensus for CBAY’s outlook.
  2. Past Track Record: Has CBAY been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of CBAY’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how CBAY measures up against other companies on valuation. You could start with this free list of prospective options.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.