One Thing To Remember About The The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) Share Price

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If you're interested in The Bank of N.T. Butterfield & Son Limited (NYSE:NTB), 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the market.

Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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.

See our latest analysis for Bank of N.T. Butterfield & Son

What we can learn from NTB's beta value

Zooming in on Bank of N.T. Butterfield & Son, we see it has a five year beta of 0.90. This is below 1, so historically its share price has been rather independent from the market. If history is a good guide, owning the stock should help ensure that your portfolio is not overly sensitive to market volatility. Beta is worth considering, but it's also important to consider whether Bank of N.T. Butterfield & Son is growing earnings and revenue. You can take a look for yourself, below.

NYSE:NTB Income Statement, March 31st 2019
NYSE:NTB Income Statement, March 31st 2019

How does NTB's size impact its beta?

With a market capitalisation of US$1.9b, Bank of N.T. Butterfield & Son is a small cap stock. However, it is big enough to catch the attention of professional investors. Small companies often have a high beta value, but they can be heavily influenced by company-specific events. This might explain why this stock has a low beta.

What this means for you:

The Bank of N.T. Butterfield & Son doesn't usually show much sensitivity to the broader market. This could be for a variety of reasons. Typically, smaller companies have a low beta if their share price tends to move a lot due to company specific developments. Alternatively, an strong dividend payer might move less than the market because investors are valuing it for its income stream. In order to fully understand whether NTB is a good investment for you, we also need to consider important company-specific fundamentals such as Bank of N.T. Butterfield & Son’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 NTB’s future growth? Take a look at our free research report of analyst consensus for NTB’s outlook.

  2. Past Track Record: Has NTB 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 NTB's historicals for more clarity.

  3. Other Interesting Stocks: It's worth checking to see how NTB 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.

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