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How Does Cornerstone OnDemand, Inc. (NASDAQ:CSOD) Affect Your Portfolio Volatility?

Simply Wall St

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If you own shares in Cornerstone OnDemand, Inc. (NASDAQ:CSOD) 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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.

Check out our latest analysis for Cornerstone OnDemand

What we can learn from CSOD's beta value

Given that it has a beta of 1.12, we can surmise that the Cornerstone OnDemand share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Cornerstone OnDemand shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it's also important to consider whether Cornerstone OnDemand is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGS:CSOD Income Statement, May 7th 2019

Could CSOD's size cause it to be more volatile?

With a market capitalisation of US$3.2b, Cornerstone OnDemand is a pretty big company, even by global standards. It is quite likely well known to very many investors. It takes a lot of money to influence the share price of large companies like this one. That makes it interesting to note that its share price has a history of sensitivity to market volatility. There might be some aspect of the business that means profits are leveraged to the economic cycle.

What this means for you:

Since Cornerstone OnDemand 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Cornerstone OnDemand’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Future Outlook: What are well-informed industry analysts predicting for CSOD’s future growth? Take a look at our free research report of analyst consensus for CSOD’s outlook.
  2. Past Track Record: Has CSOD 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 CSOD's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how CSOD 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.