Anyone researching California BanCorp (NASDAQ:CALB) 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. 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 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
What CALB's beta value tells investors
Looking at the last five years, California BanCorp has a beta of 0.88. The fact that this is well below 1 indicates that its share price movements haven't historically been very sensitive to overall market volatility. This suggests that including it in your portfolio will reduce volatility arising from broader market movements, assuming your portfolio's weighted average beta is higher than 0.88. 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 California BanCorp fares in that regard, below.
How does CALB's size impact its beta?
California BanCorp is a rather small company. It has a market capitalisation of US$97m, which means it is probably under the radar of most investors. Companies with market capitalisations around this size often show poor correlation with the broader market because market volatility is overshadowed by company specific events, or other factors. It's worth checking to see how often shares are traded, because very small companies with very low beta values are often only thinly traded.
What this means for you:
One potential advantage of owning low beta stocks like California BanCorp is that your overall portfolio won't be too sensitive to overall market movements. However, this can be a blessing or a curse, depending on what's happening in the broader market. In order to fully understand whether CALB is a good investment for you, we also need to consider important company-specific fundamentals such as California BanCorp’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Future Outlook: What are well-informed industry analysts predicting for CALB’s future growth? Take a look at our free research report of analyst consensus for CALB’s outlook.
- Past Track Record: Has CALB 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 CALB's historicals for more clarity.
- Other Interesting Stocks: It's worth checking to see how CALB 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 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.
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