Yahoo Finance How Columbia Property Trust, Inc. (NYSE:CXP) Can Impact Your Portfolio Volatility
If you're interested in Columbia Property Trust, Inc. (NYSE:CXP), then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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 is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is 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 Columbia Property Trust
What we can learn from CXP's beta value
Looking at the last five years, Columbia Property Trust has a beta of 0.89. The fact that this is well below 1 indicates that its share price movements haven't historically been very sensitive to overall market volatility. If history is a good guide, owning the stock should help ensure that your portfolio is not overly sensitive to market volatility. 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 Columbia Property Trust's revenue and earnings in the image below.
How does CXP's size impact its beta?
Columbia Property Trust is a reasonably big company, with a market capitalisation of US$2.6b. Most companies this size are actively traded with decent volumes of shares changing hands each day. When large companies like this one have a low beta value, there is usually some other factor that is having an outsized impact on the share price. For example, a business with significant fixed regulated assets might earn a reasonably predictable return, regardless of broader macroeconomic factors. Alternatively, lumpy earnings might mean minimal share price correlation with the broader market.
What this means for you:
Since Columbia Property Trust is not heavily influenced by market moves, its share price is probably far more dependent on company specific developments. It could pay to take a closer look at metrics such as revenue growth, earnings growth, and debt. In order to fully understand whether CXP is a good investment for you, we also need to consider important company-specific fundamentals such as Columbia Property Trust’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
Future Outlook: What are well-informed industry analysts predicting for CXP’s future growth? Take a look at our free research report of analyst consensus for CXP’s outlook.
Past Track Record: Has CXP 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 CXP's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how CXP measures up against other companies on valuation. You could start with this free list of prospective options.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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