If you own shares of American Vanguard Corporation (NYSE: AVD), it is worth thinking about how this contributes to the volatility of your portfolio. In finance, beta is a measure of volatility. Modern financial theory views volatility as a measure of risk. There are two main types of price volatility. The first category is the volatility specific to the company. This can be handled by limiting your exposure to a particular title. The other type, which can not be diversified, is the volatility of the entire market. Each market share is exposed to this volatility, due to the fact that stock prices are correlated in an efficient market.

Some stocks closely mimic market volatility, while others have moderate, exaggerated or uncorrelated price movements. Beta is a widely used measure of a stock's exposure to market risk (volatility). Before proceeding, it should be noted that Warren Buffett pointed out in his 2014 letter to shareholders that "volatility is far from being risky". That said, the beta can still be quite useful. The first thing to understand about the beta is that the beta of the whole market is one. Any stock with a beta greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or weakly correlated with the market.

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What we can learn from the beta value of AVD

Given that its beta is 1.15, we can assume that the US stock price Vanguard has been quite sensitive to the volatility of the market (over the past 5 years). Based on this background, investors should be aware that American Vanguard is likely to experience a sharp rise in case of greed, but to be sold in case of fear. The beta is worth considering, but it is also important to determine if American Vanguard increases its profits and income. You can take a look for yourself, below.

NYSE: AVD Income Statement Export 11th January 19

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What is the impact of AVD's size on its beta?

With a market capitalization of 485 million US dollars, American Vanguard is a very small company at the global level. It is very likely that it is unknown to most investors. It takes less money to influence the share price of a very small company. This may explain the excessive volatility induced by this beta value.

What does this mean for you?

As American Vanguard tends to increase when the market is going up and down when the market goes down, potential investors may want to think about the market as a whole, when considering taking stock. In order to fully understand if AVD is a good investment for you, we also need to consider important business fundamentals, such as the financial health and results achieved by American Vanguard. I urge you to continue your research by examining the following:

  1. Future prospects: What are well-informed industry analysts predicting for the future growth of AVD? Check out our free analyst consensus report on AVD's outlook.
  2. antecedents: Has AVD always performed independently of the highs and lows of the market? Go into more detail in past performance reviews and review free visual representations of AVD history for clarity.
  3. Other interesting actionsIt is useful to check how AVD compares to other companies in terms of evaluation. You can start with this free list of potential options.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "To help readers understand the past volatility of the financial market in the short term, our goal is to provide you with a long-term research analysis based solely on fundamental data. Note that our analysis does not take into account the latest price sensitive business announcements.

The author is an independent contributor and, at the time of publication, was not positioned in the mentioned actions. For errors that need to be corrected, please contact the publisher at editorial-team@simplywallst.com.

"data-reactid =" 53 "> To help readers understand the short-term volatility of the financial market, we aim to provide you with a long-term research analysis focusing on fundamental data only. ignores the latest price sensitive business announcements.

The author is an independent contributor and, at the time of publication, was not positioned in the mentioned actions. For errors that need to be corrected, please contact the publisher at editorial-team@simplywallst.com.