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How Does Eco (Atlantic) Oil & Gas Ltd. (CVE:EOG) Affect Your Portfolio Volatility?

Simply Wall St

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If you're interested in Eco (Atlantic) Oil & Gas Ltd. (CVE:EOG), then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. 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 other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient 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. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

View our latest analysis for Eco (Atlantic) Oil & Gas

What EOG's beta value tells investors

Given that it has a beta of 1.68, we can surmise that the Eco (Atlantic) Oil & Gas share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Eco (Atlantic) Oil & Gas 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 Eco (Atlantic) Oil & Gas is growing earnings and revenue. You can take a look for yourself, below.

TSXV:EOG Income Statement, June 26th 2019

How does EOG's size impact its beta?

Eco (Atlantic) Oil & Gas is a rather small company. It has a market capitalisation of CA$270m, which means it is probably under the radar of most investors. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.

What this means for you:

Since Eco (Atlantic) Oil & Gas 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 Eco (Atlantic) Oil & Gas’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 EOG’s future growth? Take a look at our free research report of analyst consensus for EOG’s outlook.
  2. Past Track Record: Has EOG 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 EOG's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how EOG 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.