Yahoo Finance What You Must Know About Traverse Energy Ltd.'s (CVE:TVL) Beta Value
If you're interested in Traverse Energy Ltd. (CVE:TVL), 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. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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.
View our latest analysis for Traverse Energy
What we can learn from TVL's beta value
Looking at the last five years, Traverse Energy has a beta of 0.85. 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 Traverse Energy's revenue and earnings in the image below.
How does TVL's size impact its beta?
Traverse Energy is a noticeably small company, with a market capitalisation of CA$1.6m. Most companies this size are not always actively traded. Companies with market capitalisations around this size often show poor correlation with the broader market because market volatility is overshadowed by company specific events, or other factors. It's worth checking to see how often shares are traded, because very small companies with very low beta values are often only thinly traded.
What this means for you:
Since Traverse Energy is not heavily influenced by market moves, its share price is probably far more dependend 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 TVL is a good investment for you, we also need to consider important company-specific fundamentals such as Traverse Energy’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
Financial Health: Are TVL’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Past Track Record: Has TVL 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 TVL's historicals for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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. Thank you for reading.
