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If you own shares in Nordic Waterproofing Holding A/S (STO:NWG) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. 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. 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. 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.
What we can learn from NWG's beta value
With a beta of 1.04, (which is quite close to 1) the share price of Nordic Waterproofing Holding has historically been about as voltile as the broader market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility going forward but it probably won't be particularly sensitive to it. 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 Nordic Waterproofing Holding fares in that regard, below.
Could NWG's size cause it to be more volatile?
Nordic Waterproofing Holding is a rather small company. It has a market capitalisation of kr1.8b, which means it is probably under the radar of most investors. Companies this small are usually more volatile than the market, whether or not that volatility is correlated. Therefore, it's a bit surprising to see that this stock has a beta value so close to the overall market.
What this means for you:
Since Nordic Waterproofing Holding has a beta close to one, it will probably show a positive return when the market is moving up, based on history. If you're trying to generate better returns than the market, it would be worth thinking about other metrics such as cashflows, dividends and revenue growth might be a more useful guide to the future. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Nordic Waterproofing Holding’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for NWG’s future growth? Take a look at our free research report of analyst consensus for NWG’s outlook.
- Past Track Record: Has NWG 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 NWG's historicals for more clarity.
- Other Interesting Stocks: It's worth checking to see how NWG 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 firstname.lastname@example.org. 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.