Anyone researching CareDx,should vent be under plastic for radon mitigation system Inc (

NASDAQ:CDNA

) might want to consider the historical volatility of the share price. 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 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 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

Check out our latest analysis for CareDx

What we can learn from CDNA’s beta value

CareDx has a five-year beta of 1.02. This is reasonably close to the market beta of 1, so the stock has in the past displayed similar levels of volatility to the overall market. If the future looks like the past, we could therefore consider it likely that the stock price will experience share price volatility that is roughly similar to the overall market. 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 CareDx fares in that regard, below.

NasdaqGM:CDNA Income Statement Export January 2nd 19

How does CDNA’s size impact its beta?

CareDx is a small company, but not tiny and little known. It has a market capitalisation of US$958m, which means it would be on the radar of intstitutional investors. It takes less capital to move the share price of small companies, and they are also more impacted by company specific events, so it’s a bit of a surprise that the beta is so close to the overall market.

What this means for you:

CareDx has a beta value quite close to that of the overall market. That doesn’t tell us much on its own, so it is probably worth considering whether the company is growing, if you’re looking for stocks that will go up more than the overall market. In order to fully understand whether CDNA is a good investment for you, we also need to consider important company-specific fundamentals such as CareDx’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

Story continues

Future Outlook

: What are well-informed industry analysts predicting for CDNA’s future growth? Take a look at our

free research report of analyst consensus

for CDNA’s outlook.

Past Track Record

: Has CDNA 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 CDNA’s historicals

for more clarity.

Other Interesting Stocks

: It’s worth checking to see how CDNA measures up against other companies on valuation. You could start with this

free list of prospective options

.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at

[email protected]

.

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