If you own shares in Green Cross Health Limited (NZSE: GXH), you need to think 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. First, we have company-specific volatility, which is the price movement of an individual stock. Holding at least 8 stocks can reduce this type of risk in a portfolio. The second type is caused by the natural volatility of the markets as a whole. For example, certain macroeconomic events will affect (virtually) all securities in the market.

Some stocks see their prices move along with the market. Others tend toward stronger, softer or unrelated 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. A stock with a beta greater than one is more sensitive to market movements than stocks with a beta below one.

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What does the beta value of GXH mean for investors?

Given that its beta is 0.88, we can assume that the Green Cross Health stock price was not strongly affected by the increased volatility of the market (over the past five years). That means – if history is a guide – the purchase of the stock would reduce the impact of overall market volatility in many portfolios (depending on the beta of the portfolio, although sure). Stock price volatility is worth considering, but most long-term investors believe the story of earnings growth and earnings growth is more important. Take a look at Green Cross Health rates in this regard, below.

NZSE: GXH Operating Account Exported January 12, 19

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Could the size of GXH be more volatile?

Green Cross Health is a small business. It has a market capitalization of 164 million NZD, which means it's probably under the radar of most investors. Companies with market capitalizations close to this size often show a low correlation with the broader market because market volatility is overshadowed by company-specific events or other factors. It is useful to check the frequency with which shares are traded, as very small businesses with a very low beta value are often traded very little.

What does this mean for you?

Green Cross Health generally does not show much sensitivity to the market. This could be for various reasons. Typically, small businesses have a low beta if their stock price tends to fluctuate a lot due to specific developments. Alternatively, a strong dividend payer could move less than the market because investors value it for its revenue stream. To fully understand if GXH is a good investment for you, we also need to consider important fundamentals of the company, such as the financial health and performance of Green Cross Health. I strongly recommend that you dive deeper by considering the following points:

  1. Future prospects: What do well-informed industry analysts predict for GXH's future growth? Check out our free research report on analyst consensus on GXH's outlook.
  2. antecedents: Has GXH always performed independently of the highs and lows of the market? Go into more detail in past performance reviews and take a look at the free visual representations of GXH's history for clarity.
  3. Other interesting actionsIt is useful to check how GXH compares to other companies in terms of valuation. 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.