COVID‑19 has impacted different industries in different ways. For example, it has affected domestic travel differently from financial services. But companies within the same sector have performed very differently in the past few months—with some significantly outperforming their peers while others underperformed. According to our analysis, cyber governance—the measure of how well a company manages its technology risks relative to the risks it faces as a result of increasing digitization—provides an explanation for this differential. The difference in knowing bad vs. good technology governance has beaten the market by 19% in the US and 41% in the EU this year.
The COVID‑19 pandemic has changed the way we use technology. As a result, everything from grocery shopping to banking and business meetings has undergone rapid digital transformation—changing user habits and business models along the way.
With two year’s worth of digital transformation happening in two months, the future has been brought forward, increasing the relevance of cyber governance. As a result, understanding a company’s cyber governance has become an even more important factor in predicting future market performance.
Cyberhedge has created the world’s first financial tool for instantly pricing cyber risk. We do this by performing assessments on the combined cyber and financial performance for companies. We are the only company in the world able to measure the impact of cyber governance on shareholder value and financial statements for over 5,000 companies across the three major financial markets—the United States, United Kingdom and European Union.
Our cyber governance ratings, summarized by a star rating ranging from 1 (worst) to 5 (best), have accurately predicted market outperformers and underperformers in every sector, and across each of the major markets for the past three years. Our results clearly demonstrate that how a company executes its digital transformation strategy, and manages related risks, impacts shareholder value and financial statements.
Not only have our predictions held up since the onset of the COVID‑19 crisis, the separation between those companies with good cyber governance (5‑Star) and the worst (1‑Star) has become much more pronounced—across entire markets, and within specific sectors.
Over the next several weeks, we will be pulling the curtain back and providing a sector-by-sector comparison of outperformers and underperformers and what it means for future market performance. By comparing companies within the same industry, we normalize for COVID‑19 impacts—looking at companies with similar business models and exposure to disruptions.
Our first focus is the industrials sector. We’ll cover one company that has performed well on a cyber governance basis and one that has not. Furthermore, we will show that, using our ratings, investors could have predicted these outcomes before the crisis began.
Did you know the right questions to ask before the pandemic hit? Do you know the right questions to ask moving forward?
By using our tool that applies the combined Cyber-Financial lens, Cyberhedge helps company management understand how downside financial risks due to poorly managed technology can be reduced. By knowing the right questions to ask, companies can understand their strengths and weaknesses in relation to sector peers, and investors can track if their portfolio is exposed to the 1‑Star group and make the appropriate adjustments.