If you own shares in Apple Hospitality REIT, Inc. (NYSE:APLE) 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. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. The second type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the 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.
What APLE’s beta value tells investors
Looking at the last five years, Apple Hospitality REIT has a beta of 0.82. The fact that this is well below 1 indicates that its share price movements haven’t historically been very sensitive to overall market volatility. This suggests that including it in your portfolio will reduce volatility arising from broader market movements, assuming your portfolio’s weighted average beta is higher than 0.82. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how Apple Hospitality REIT fares in that regard, below.
Does APLE’s size influence the expected beta?
With a market capitalisation of US$3.7b, Apple Hospitality REIT is a pretty big company, even by global standards. It is quite likely well known to very many investors. When a large company like this trades with a low beta value, it is often because there is some other systemic factor influencing the share price. For example, commodity prices might influence a mining company strongly, while expectations around dividend payments (and capital expenditure requirements) might have a big impact on utilities.
What this means for you:
One potential advantage of owning low beta stocks like Apple Hospitality REIT is that your overall portfolio won’t be too sensitive to overall market movements. However, this can be a blessing or a curse, depending on what’s happening in the broader market. In order to fully understand whether APLE is a good investment for you, we also need to consider important company-specific fundamentals such as Apple Hospitality REIT’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Future Outlook: What are well-informed industry analysts predicting for APLE’s future growth? Take a look at our free research report of analyst consensus for APLE’s outlook.
- Past Track Record: Has APLE 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 APLE’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how APLE 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.