If you're interested in Trustmark Corporation (NASDAQ:TRMK), 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. 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 other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
What TRMK's beta value tells investors
While history does not always repeat, this level of beta may indicate that the stock price will continue to be exposed to market risk, albeit not overly so. Beta is worth considering, but it's also important to consider whether Trustmark is growing earnings and revenue. You can take a look for yourself, below.
Could TRMK's size cause it to be more volatile?
Trustmark is a reasonably big company, with a market capitalisation of US$2.2b. Most companies this size are actively traded with decent volumes of shares changing hands each day. We shouldn't be surprised to see a large company like this with a beta value quite close to the market average. Large companies often move roughly in line with the market. In part, that's because there are fewer individual events that are signficant enough to markedly change the value of the stock (compared to small companies, at least).
What this means for you:
It is probable that there is a link between the share price of Trustmark and the broader market, since it has a beta value quite close to one. However, long term investors are generally well served by looking past market volatility and focussing on the underlying development of the business. If that's your game, metrics such as revenue, earnings and cash flow will be more useful. In order to fully understand whether TRMK is a good investment for you, we also need to consider important company-specific fundamentals such as Trustmark’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Future Outlook: What are well-informed industry analysts predicting for TRMK’s future growth? Take a look at our free research report of analyst consensus for TRMK’s outlook.
- Past Track Record: Has TRMK 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 TRMK's historicals for more clarity.
- Other Interesting Stocks: It's worth checking to see how TRMK 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 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.
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