New Report Explores Relationship Between Cybersecurity Ratings and Stock Performance

Compares security ratings from SecurityScorecard with 52-week returns on shares for companies in the S&P 500 index

The Journal of Cyber Policy announced the publication of its latest report, Cybersecurity Ratings and Stock Performance. The report explores the relationship between a publicly traded company’s cybersecurity rating, as measured by SecurityScorecard, and the performance of its stock price over time. It compares security ratings with 52-week returns on shares for companies in the S&P 500 index, which comprises the shares of 500 large U.S. companies.

“When I first saw SecurityScorecard’s system, I immediately wondered if there were a connection between a public company’s cybersecurity posture and its stock performance,” said Hugh Taylor, a cybersecurity analyst and Executive Editor of the Journal of Cyber Policy. “Industry research does show a fairly clear relationship between a public company suffering a data breach and a decline in its share price, at least temporarily. Would that also mean that a company with a robust cybersecurity posture enjoys strong stock performance? That’s the question we sought to answer in this research.”

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Until recently, such an investigation would have been a hypothetical exercise. With SecurityScorecard, however, it is possible to determine the quality of cybersecurity practices for thousands of companies on a nearly instantaneous basis. Their technology scans a range of public information, including dark-web data, relating to a given company. From this, they are able to build a cyber risk profile that rates the security of the company’s networks, DNS, endpoint security, malware infections, patching and so forth.

The findings are surprising. Strong cybersecurity posture does not always translate into better stock price performance, with some exceptions. However, the data represents a snapshot of a time period, August 2019 to August 2020, when unprecedented events occurred. The COVID-19 lockdown may have had effects on industries such as technology and hospitality that are atypical.

According to Alex Heid, Chief Research & Development Officer at SecurityScorecard, “As markets recalibrate, enterprise cybersecurity postures adjust to newly deployed w************* environments, and the related incoming risk data plots itself out accordingly, a complete picture will begin to form over time. Surprising patterns will continue to take shape, and the data itself will narrate the next chapter of the story.”

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For those looking for a magic, heretofore secret indicator of future stock performance, this report will be disappointing. Rather, like any single source of information, a cybersecurity rating should not be interpreted at face value as an oracle for predictive stock price movement. There is no magic data feed that will tell an investor which stocks to “buy low” and “sell high.”

However, the report does reveal a new potential avenue of inquiry for stock market analysis. Although the stories behind the financial movements of any major enterprise are complex and multifaceted, cybersecurity ratings may prove useful as potential investment signals when correlated with updated business intelligence.

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