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If you're interested in Aker Solutions ASA (OB:AKSO), 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. 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 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. 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. 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 Aker Solutions
What does AKSO's beta value mean to investors?
Zooming in on Aker Solutions, we see it has a five year beta of 1.12. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If this beta value holds true in the future, Aker Solutions shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Beta is worth considering, but it's also important to consider whether Aker Solutions is growing earnings and revenue. You can take a look for yourself, below.
Does AKSO's size influence the expected beta?
Aker Solutions is a small cap stock with a market capitalisation of øre9.3b. Most companies this size are actively traded. It has a relatively high beta, which is not unusual among small-cap stocks. Because it takes less capital to move the share price of a smaller company, actively traded small-cap stocks often have a higher beta that a similar large-cap stock.