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If you own shares in CommScope Holding Company, Inc. (NASDAQ:COMM) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 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 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. 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 CommScope Holding Company
What COMM's beta value tells investors
Zooming in on CommScope Holding Company, we see it has a five year beta of 1.52. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. Based on this history, investors should be aware that CommScope Holding Company are likely to rise strongly in times of greed, but sell off in times of fear. 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 CommScope Holding Company's revenue and earnings in the image below.
How does COMM's size impact its beta?
CommScope Holding Company is a fairly large company. It has a market capitalisation of US$3.2b, which means it is probably on the radar of most investors. It takes deep pocketed investors to influence the share price of a large company, so it's a little unusual to see companies this size with high beta values. It may be that that this company is more heavily impacted by broader economic factors than most.