Should You Be Concerned About Beowulf Mining plc's (LON:BEM) Historical Volatility?

Anyone researching Beowulf Mining plc (LON:BEM) might want to consider the historical volatility of the share price. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. 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 are more sensitive to general market forces than others. 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.

See our latest analysis for Beowulf Mining

What does BEM's beta value mean to investors?

Zooming in on Beowulf Mining, we see it has a five year beta of 1.27. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market the market. If this beta value holds true in the future, Beowulf Mining shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Beta is worth considering, but it's also important to consider whether Beowulf Mining is growing earnings and revenue. You can take a look for yourself, below.

Does BEM's size influence the expected beta?

Beowulf Mining is a rather small company. It has a market capitalisation of UK£42m, which means it is probably under the radar of most investors. 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 Beowulf Mining 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 Beowulf Mining’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

1. Financial Health: Are BEM’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Past Track Record: Has BEM 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 BEM's historicals for more clarity.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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.