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Does Apple Hospitality REIT, Inc. (NYSE:APLE) Have A High Beta?

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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. 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 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 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 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.

Check out our latest analysis for Apple Hospitality REIT

What does APLE's beta value mean to investors?

Given that it has a beta of 0.83, we can surmise that the Apple Hospitality REIT share price has not been strongly impacted by broader market volatility (over the last 5 years). This means that -- if history is a guide -- buying the stock would reduce the impact of overall market volatility in many portfolios (depending on the beta of the portfolio, of course). 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.

NYSE:APLE Income Statement, December 6th 2019
NYSE:APLE Income Statement, December 6th 2019

Does APLE's size influence the expected beta?

Apple Hospitality REIT is a reasonably big company, with a market capitalisation of US$3.6b. Most companies this size are actively traded with decent volumes of shares changing hands each day. When large companies like this one have a low beta value, there is usually some other factor that is having an outsized impact on the share price. For example, a business with significant fixed regulated assets might earn a reasonably predictable return, regardless of broader macroeconomic factors. Alternatively, lumpy earnings might mean minimal share price correlation with the broader market.

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 urge you to continue your research by taking a look at the following:

  1. 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.

  2. 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.

  3. 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.

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.

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.