How Aegean Airlines S.A. (ATH:AEGN) Can Impact Your Portfolio Volatility
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If you own shares in Aegean Airlines S.A. (ATH:AEGN) 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. 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. 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.
View our latest analysis for Aegean Airlines
What we can learn from AEGN’s beta value
Zooming in on Aegean Airlines, we see it has a five year beta of 0.88. This is below 1, so historically its share price has been rather independent from the market. If history is a good guide, owning the stock should help ensure that your portfolio is not overly sensitive to market volatility. 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 Aegean Airlines’s revenue and earnings in the image below.
How does AEGN’s size impact its beta?
Aegean Airlines is a small cap stock with a market capitalisation of €563m. Most companies this size are actively traded. Small companies can have a low beta value when company specific factors outweigh the influence of overall market volatility. That might be happening here.
What this means for you:
The Aegean Airlines doesn’t usually show much sensitivity to the broader market. This could be for a variety of reasons. Typically, smaller companies have a low beta if their share price tends to move a lot due to company specific developments. Alternatively, an strong dividend payer might move less than the market because investors are valuing it for its income stream. In order to fully understand whether AEGN is a good investment for you, we also need to consider important company-specific fundamentals such as Aegean Airlines’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 AEGN’s future growth? Take a look at our free research report of analyst consensus for AEGN’s outlook.
Past Track Record: Has AEGN 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 AEGN’s historicals for more clarity.
Other Interesting Stocks: It’s worth checking to see how AEGN 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.
