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If you own shares in First Horizon National Corporation ( NYSE:FHN ) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 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.
What FHN's beta value tells investors
Zooming in on First Horizon National, we see it has a five year beta of 1.22. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. Based on this history, investors should be aware that First Horizon National are likely to rise strongly in times of greed, but sell off in times of fear. 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 First Horizon National's revenue and earnings in the image below.
Does FHN's size influence the expected beta?
With a market capitalisation of US$4.7b, First Horizon National is a pretty big company, even by global standards. It is quite likely well known to very many investors. It has a relatively high beta, suggesting it may be somehow leveraged to macroeconomic conditions. For example, it might be a high growth stock with lots of investors trading the shares. It's notable when large companies to have high beta values, because it usually takes substantial capital flows to move their share prices.
What this means for you:
Since First Horizon National 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. In order to fully understand whether FHN is a good investment for you, we also need to consider important company-specific fundamentals such as First Horizon National’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 FHN’s future growth? Take a look at our free research report of analyst consensus for FHN’s outlook.
- Past Track Record : Has FHN 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 FHN's historicals for more clarity.
- Other Interesting Stocks : It's worth checking to see how FHN measures up against other companies on valuation. You could start with this free list of prospective options .
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 firstname.lastname@example.org . 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.