How Does Investing In Computer Modelling Group Ltd. (TSE:CMG) Impact The Volatility Of Your Portfolio?

Anyone researching Computer Modelling Group Ltd. (TSE:CMG) might want to consider the historical volatility of the share price. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

View our latest analysis for Computer Modelling Group

What does CMG's beta value mean to investors?

Given that it has a beta of 1.75, we can surmise that the Computer Modelling Group share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Computer Modelling Group 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 Computer Modelling Group is growing earnings and revenue. You can take a look for yourself, below.

Could CMG's size cause it to be more volatile?

Computer Modelling Group is a noticeably small company, with a market capitalisation of CA$323m. Most companies this size are not always actively traded. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.

What this means for you:

Since Computer Modelling Group has a reasonably high beta, it's worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Computer Modelling Group’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

1. Future Outlook: What are well-informed industry analysts predicting for CMG’s future growth? Take a look at our free research report of analyst consensus for CMG’s outlook.
2. Past Track Record: Has CMG 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 CMG's historicals for more clarity.
3. Other Interesting Stocks: It's worth checking to see how CMG measures up against other companies on valuation. You could start with this free list of prospective options.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.