Anyone researching GTT Communications, Inc. (NYSE:GTT) might want to consider the historical volatility of the share price. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. 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 are more sensitive to general market forces than others. 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 GTT Communications What we can learn from GTT’s beta value

Given that it has a beta of 1.52, we can surmise that the GTT Communications share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that GTT Communications are likely to rise strongly in times of greed, but sell off in times of fear. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how GTT Communications fares in that regard, below.

Does GTT’s size influence the expected beta?

GTT Communications is a small cap stock with a market capitalisation of US$574m. Most companies this size are actively traded. It’s not particularly surprising that it has a higher beta than the overall market. That’s because it takes less money to influence the share price of a smaller company, than a bigger company. What this means for you:

Since GTT Communications has a reasonably high beta, it’s worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as GTT Communications’s financial health and performance track record. I urge you to continue your research by taking a look at the following: Future Outlook : What are well-informed industry analysts predicting for GTT’s future growth? Take a look at ourfree research report of analyst consensusfor GTT’s outlook. Past Track Record : Has GTT 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 atthe free visual representations of GTT’s historicalsfor more clarity. Other Interesting Stocks : It’s worth checking to see how GTT measures up against other companies on valuation. You could start with thisfree list of prospective options.

If you spot an error that warrants correction, please contact the editor ateditorial-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.

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. Thank you for reading.

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