Stock Investment Series Part 9
Market Capitalization and Beta are both very important metrics to determine when picking a stock.
The Market Cap or Market Capitalization is the market value of a publicly-traded company. Looking at market capitalization can tell you how large or small a company is. Different companies have different amounts of shares outstanding, this is why a share price does not determine how valuable a company is. By multiplying the shares outstanding with the price of each share, you can find the market cap.
Beta is an important metric to consider when thinking about the risk of your portfolio. Put simply, if beta tells you how volatile a stock is. Beta compares the price movement of a share to the overall market. If beta is equal to 1.0, the volatility of the stock follows the overall market. A beta of less than 1.0 means the stock is less volatile than the overall market. And finally, a beta over 1.0 means the stock is more volatile than the market. It is important to remember, more volatility means more risk.
Recapping, the Market Capitalization allows you to understand the size of a company and Beta helps you understand the risk of investing in that company.
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