Does The Cherry Hill Mortgage Investment Corporation (NYSE:CHMI) Share Price Fall With The Market?
If you're interested in Cherry Hill Mortgage Investment Corporation (NYSE:CHMI), 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
See our latest analysis for Cherry Hill Mortgage Investment
What does CHMI's beta value mean to investors?
Looking at the last five years, Cherry Hill Mortgage Investment has a beta of 1.18. The fact that this is well above 1 indicates that its share price movements have shown sensitivity to overall market volatility. If this beta value holds true in the future, Cherry Hill Mortgage Investment shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 Cherry Hill Mortgage Investment fares in that regard, below.
How does CHMI's size impact its beta?
Cherry Hill Mortgage Investment is a rather small company. It has a market capitalisation of US$80m, which means it is probably under the radar of most investors. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.
What this means for you:
Since Cherry Hill Mortgage Investment tends to move up when the market is going up, and down when it's going down, potential investors may wish to reflect on the overall market, when considering the stock. In order to fully understand whether CHMI is a good investment for you, we also need to consider important company-specific fundamentals such as Cherry Hill Mortgage Investment’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 CHMI’s future growth? Take a look at our free research report of analyst consensus for CHMI’s outlook.
Past Track Record: Has CHMI 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 CHMI's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how CHMI 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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