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Does The Wolverine World Wide, Inc. (NYSE:WWW) Share Price Fall With The Market?

Simply Wall St

If you own shares in Wolverine World Wide, Inc. (NYSE:WWW) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. 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 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. Beta is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is 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.

Check out our latest analysis for Wolverine World Wide

What we can learn from WWW's beta value

With a beta of 1.06, (which is quite close to 1) the share price of Wolverine World Wide 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. 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 Wolverine World Wide's revenue and earnings in the image below.

NYSE:WWW Income Statement, November 15th 2019

How does WWW's size impact its beta?

Wolverine World Wide is a reasonably big company, with a market capitalisation of US$2.6b. Most companies this size are actively traded with decent volumes of shares changing hands each day. It's not overly surprising to see large companies with beta values reasonably close to the market average. After all, large companies make up a higher weighting of the index than do small companies.

What this means for you:

It is probable that there is a link between the share price of Wolverine World Wide and the broader market, since it has a beta value quite close to one. However, long term investors are generally well served by looking past market volatility and focussing on the underlying development of the business. If that's your game, metrics such as revenue, earnings and cash flow will be more useful. In order to fully understand whether WWW is a good investment for you, we also need to consider important company-specific fundamentals such as Wolverine World Wide’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 WWW’s future growth? Take a look at our free research report of analyst consensus for WWW’s outlook.
  2. Past Track Record: Has WWW 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 WWW's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how WWW 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.