How Does Investing In Applied Industrial Technologies, Inc. (NYSE:AIT) Impact The Volatility Of Your Portfolio?

If you own shares in Applied Industrial Technologies, Inc. (NYSE:AIT) 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 other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.

Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Beta can be a useful tool to understand how much a stock is influenced by market risk (volatility). However, Warren Buffett said ‘volatility is far from synonymous with risk’ in his 2014 letter to investors. So, while useful, beta is not the only metric to consider. To use beta as an investor, you must first understand that the overall market has a beta of one. A stock with a beta greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

Check out our latest analysis for Applied Industrial Technologies

What AIT’s beta value tells investors

Given that it has a beta of 1.30, we can surmise that the Applied Industrial Technologies share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Applied Industrial Technologies shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it’s also important to consider whether Applied Industrial Technologies is growing earnings and revenue. You can take a look for yourself, below.

NYSE:AIT Income Statement, August 27th 2019
NYSE:AIT Income Statement, August 27th 2019

Could AIT’s size cause it to be more volatile?

Applied Industrial Technologies is a small cap stock with a market capitalisation of US$2.0b. Most companies this size are actively traded. It has a relatively high beta, which is not unusual among small-cap stocks. Because it takes less capital to move the share price of a smaller company, actively traded small-cap stocks often have a higher beta that a similar large-cap stock.

What this means for you:

Since Applied Industrial Technologies 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 Applied Industrial Technologies’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 AIT’s future growth? Take a look at our free research report of analyst consensus for AIT’s outlook.
  2. Past Track Record: Has AIT 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 AIT’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how AIT 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.