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Does Market Volatility Impact Northern Oil and Gas, Inc.'s (NYSEMKT:NOG) Share Price?

Simply Wall St

If you're interested in Northern Oil and Gas, Inc. (NYSEMKT:NOG), 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. 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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 are more sensitive to general market forces than others. 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 Northern Oil and Gas

What does NOG's beta value mean to investors?

Given that it has a beta of 1.77, we can surmise that the Northern Oil and Gas share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Northern Oil and Gas shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. 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 Northern Oil and Gas's revenue and earnings in the image below.

AMEX:NOG Income Statement, October 30th 2019

Does NOG's size influence the expected beta?

Northern Oil and Gas is a small cap stock with a market capitalisation of US$803m. Most companies this size are actively traded. It's not particularly surprising that it has a higher beta than the overall market. That's because it takes less money to influence the share price of a smaller company, than a bigger company.

What this means for you:

Since Northern Oil and Gas 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. In order to fully understand whether NOG is a good investment for you, we also need to consider important company-specific fundamentals such as Northern Oil and Gas’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Future Outlook: What are well-informed industry analysts predicting for NOG’s future growth? Take a look at our free research report of analyst consensus for NOG’s outlook.
  2. Past Track Record: Has NOG 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 NOG's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how NOG 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.