What You Must Know About Cohu, Inc.'s (NASDAQ:COHU) Beta Value

If you're interested in Cohu, Inc. (NASDAQ:COHU), then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. 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 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. 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 Cohu

What COHU's beta value tells investors

Looking at the last five years, Cohu has a beta of 1.31. The fact that this is well above 1 indicates that its share price movements have shown sensitivity to overall market volatility. If this beta value holds true in the future, Cohu shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 Cohu fares in that regard, below.

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

With a market capitalisation of US$534m, Cohu is a small cap stock. However, it is big enough to catch the attention of professional investors. It's not particularly surprising that it has a higher beta than the overall market. That's because it takes less money to influence the share price of a smaller company, than a bigger company.

What this means for you:

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