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How Does Investing In Career Education Corporation (NASDAQ:CECO) Impact The Volatility Of Your Portfolio?

Simply Wall St

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Anyone researching Career Education Corporation (NASDAQ:CECO) might want to consider the historical volatility of the share price. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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 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.

View our latest analysis for Career Education

What does CECO's beta value mean to investors?

Given that it has a beta of 1.67, we can surmise that the Career Education share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Career Education shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how Career Education fares in that regard, below.

NasdaqGS:CECO Income Statement, June 3rd 2019

Does CECO's size influence the expected beta?

Career Education is a small company, but not tiny and little known. It has a market capitalisation of US$1.3b, which means it would be on the radar of intstitutional investors. It is quite common to see a small-cap stock with a beta greater than one. In part, that's because relatively few investors can influence the price of a smaller company, compared to a large company.

What this means for you:

Since Career Education 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 Career Education’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 CECO’s future growth? Take a look at our free research report of analyst consensus for CECO’s outlook.
  2. Past Track Record: Has CECO 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 CECO's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how CECO 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.