Should You Be Concerned About SGL Carbon SE's (FRA:SGL) Historical Volatility?
If you own shares in SGL Carbon SE (FRA:SGL) 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 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. 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.
View our latest analysis for SGL Carbon
What SGL's beta value tells investors
Zooming in on SGL Carbon, we see it has a five year beta of 1.9. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. Based on this history, investors should be aware that SGL Carbon are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it's also important to consider whether SGL Carbon is growing earnings and revenue. You can take a look for yourself, below.
Could SGL's size cause it to be more volatile?
SGL Carbon is a small cap stock with a market capitalisation of €759m. Most companies this size are actively traded. It is quite common to see a small-cap stock with a beta greater than one. In part, that's because relatively few investors can influence the price of a smaller company, compared to a large company.
What this means for you:
Since SGL Carbon tends to moves up when the market is going up, and down when it's going down, potential investors may wish to reflect on the overall market, when considering the stock. In order to fully understand whether SGL is a good investment for you, we also need to consider important company-specific fundamentals such as SGL Carbon’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 SGL’s future growth? Take a look at our free research report of analyst consensus for SGL’s outlook.
Past Track Record: Has SGL 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 SGL's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how SGL 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.
