U.S. Markets open in 7 hrs 35 mins

How Does First Financial Bancorp. (NASDAQ:FFBC) Affect Your Portfolio Volatility?

Simply Wall St

Anyone researching First Financial Bancorp. (NASDAQ:FFBC) might want to consider the historical volatility of the share price. 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 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 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.

See our latest analysis for First Financial Bancorp

What we can learn from FFBC's beta value

Zooming in on First Financial Bancorp, we see it has a five year beta of 1.22. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If the past is any guide, we would expect that First Financial Bancorp 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 First Financial Bancorp is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGS:FFBC Income Statement, December 6th 2019

Does FFBC's size influence the expected beta?

First Financial Bancorp is a reasonably big company, with a market capitalisation of US$2.4b. Most companies this size are actively traded with decent volumes of shares changing hands each day. It has a relatively high beta, suggesting it may be somehow leveraged to macroeconomic conditions. For example, it might be a high growth stock with lots of investors trading the shares. It's notable when large companies to have high beta values, because it usually takes substantial capital flows to move their share prices.

What this means for you:

Since First Financial Bancorp has a reasonably high beta, it's worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as First Financial Bancorp’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 FFBC’s future growth? Take a look at our free research report of analyst consensus for FFBC’s outlook.
  2. Past Track Record: Has FFBC 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 FFBC's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how FFBC 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.