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Does The Golden Ocean Group Limited (NASDAQ:GOGL) Share Price Tend To Follow The Market?

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If you're interested in Golden Ocean Group Limited (NASDAQ:GOGL), 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 are more sensitive to general market forces than others. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that 'Volatility is far from synonymous with risk', beta is still a useful factor to consider. To make good use of it you must first know that the beta of the overall market is 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.

View our latest analysis for Golden Ocean Group

What we can learn from GOGL's beta value

Zooming in on Golden Ocean Group, we see it has a five year beta of 1.82. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If this beta value holds true in the future, Golden Ocean Group shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see Golden Ocean Group's revenue and earnings in the image below.

NasdaqGS:GOGL Income Statement May 20th 2020
NasdaqGS:GOGL Income Statement May 20th 2020

How does GOGL's size impact its beta?

Golden Ocean Group is a noticeably small company, with a market capitalisation of US$467m. Most companies this size are not always actively traded. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

What this means for you:

Since Golden Ocean Group 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 Golden Ocean Group’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 GOGL’s future growth? Take a look at our free research report of analyst consensus for GOGL’s outlook.

  2. Past Track Record: Has GOGL 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 GOGL's historicals for more clarity.

  3. Other Interesting Stocks: It's worth checking to see how GOGL measures up against other companies on valuation. You could start with this free list of prospective options.

Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email 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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.