If you own shares in Izolacja Jarocin Spolka Akcyjna (WSE:IZO) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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. Beta is a widely used metric to measure a stock’s exposure to market risk (volatility). Before we go on, it’s worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that ‘volatility is far from synonymous with risk.’ Having said that, beta can still be rather useful. The first thing to understand about beta is 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.
What we can learn from IZO’s beta value
With a beta of 1.03, (which is quite close to 1) the share price of Izolacja Jarocin Spolka Akcyjna has historically been about as voltile as the broader market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility going forward but it probably won’t be particularly sensitive to it. 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 Izolacja Jarocin Spolka Akcyjna’s revenue and earnings in the image below.
Does IZO’s size influence the expected beta?
With a market capitalisation of zł6.1m, Izolacja Jarocin Spolka Akcyjna is a very small company by global standards. It is quite likely to be unknown to most investors. Companies this small are usually more volatile than the market, whether or not that volatility is correlated. Therefore, it’s a bit surprising to see that this stock has a beta value so close to the overall market.
What this means for you:
It is probable that there is a link between the share price of Izolacja Jarocin Spolka Akcyjna and the broader market, since it has a beta value quite close to one. However, long term investors are generally well served by looking past market volatility and focussing on the underlying development of the business. If that’s your game, metrics such as revenue, earnings and cash flow will be more useful. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Izolacja Jarocin Spolka Akcyjna’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for IZO’s future growth? Take a look at our free research report of analyst consensus for IZO’s outlook.
- Past Track Record: Has IZO 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 IZO’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how IZO 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 firstname.lastname@example.org. 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.