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Anyone researching Field Solutions Holdings Limited (ASX:FSG) might want to consider the historical volatility of the share price. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. 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 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 Field Solutions Holdings
What we can learn from FSG's beta value
Given that it has a beta of 1.38, we can surmise that the Field Solutions Holdings share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Field Solutions Holdings shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it's also important to consider whether Field Solutions Holdings is growing earnings and revenue. You can take a look for yourself, below.
Does FSG's size influence the expected beta?
Field Solutions Holdings is a noticeably small company, with a market capitalisation of AU$6.0m. Most companies this size are not always actively traded. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.
What this means for you:
Since Field Solutions Holdings 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 FSG is a good investment for you, we also need to consider important company-specific fundamentals such as Field Solutions Holdings’s financial health and performance track record. I urge you to continue your research by taking a look at the following: