Anyone researching Kaiser Aluminum Corporation (NASDAQ:KALU) 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 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. A stock with a beta greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
What KALU's beta value tells investors
With a beta of 1.08, (which is quite close to 1) the share price of Kaiser Aluminum has historically been about as voltile as the broader market. While history does not always repeat, this may indicate that the stock price will continue to be exposed to market risk, albeit not overly so. 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 Kaiser Aluminum fares in that regard, below.
Could KALU's size cause it to be more volatile?
Kaiser Aluminum is a small company, but not tiny and little known. It has a market capitalisation of US$1.8b, which means it would be on the radar of intstitutional investors. It takes less capital to move the share price of small companies, and they are also more impacted by company specific events, so it's a bit of a surprise that the beta is so close to the overall market.
What this means for you:
It is probable that there is a link between the share price of Kaiser Aluminum 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. In order to fully understand whether KALU is a good investment for you, we also need to consider important company-specific fundamentals such as Kaiser Aluminum’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 KALU’s future growth? Take a look at our free research report of analyst consensus for KALU’s outlook.
- Past Track Record: Has KALU 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 KALU's historicals for more clarity.
- Other Interesting Stocks: It's worth checking to see how KALU measures up against other companies on valuation. You could start with this free list of prospective options.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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. Thank you for reading.