If you own shares in Ashford Hospitality Trust Inc (NYSE:AHT) 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 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.
What does AHT’s beta value mean to investors?
With a beta of 1.09, (which is quite close to 1) the share price of Ashford Hospitality Trust 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. Beta is worth considering, but it’s also important to consider whether Ashford Hospitality Trust is growing earnings and revenue. You can take a look for yourself, below.
Does AHT’s size influence the expected beta?
Ashford Hospitality Trust is a small company, but not tiny and little known. It has a market capitalisation of US$619m, 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:
Ashford Hospitality Trust has a beta value quite close to that of the overall market. That doesn’t tell us much on its own, so it is probably worth considering whether the company is growing, if you’re looking for stocks that will go up more than the overall market. In order to fully understand whether AHT is a good investment for you, we also need to consider important company-specific fundamentals such as Ashford Hospitality Trust’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for AHT’s future growth? Take a look at our free research report of analyst consensus for AHT’s outlook.
- Past Track Record: Has AHT 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 AHT’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how AHT measures up against other companies on valuation. You could start with this free list of prospective options.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.