If you own shares in RTC Group plc (

LON:RTC

) then it’s worth thinking about how it contributes to the volatility of your portfolio,king gizzard and the lizard wizard forest hills 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. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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.

Check out our latest analysis for RTC Group

What does RTC’s beta value mean to investors?

Given that it has a beta of 1.39, we can surmise that the RTC Group share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, RTC Group shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 RTC Group’s revenue and earnings in the image below.

AIM:RTC Income Statement Export January 2nd 19

Could RTC’s size cause it to be more volatile?

RTC Group is a noticeably small company, with a market capitalisation of UK£7.3m. Most companies this size are not always actively traded. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.

What this means for you:

Since RTC Group 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 RTC is a good investment for you, we also need to consider important company-specific fundamentals such as RTC Group’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

Story continues

Future Outlook

: What are well-informed industry analysts predicting for RTC’s future growth? Take a look at our

free research report of analyst consensus

for RTC’s outlook.

Past Track Record

: Has RTC 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 RTC’s historicals

for more clarity.

Other Interesting Stocks

: It’s worth checking to see how RTC measures up against other companies on valuation. You could start with this

free list of prospective options

.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at

[email protected]

.

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