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How BiondVax Pharmaceuticals Ltd. (NASDAQ:BVXV) Can Impact Your Portfolio Volatility

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If you own shares in BiondVax Pharmaceuticals Ltd. (NASDAQ:BVXV) 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 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. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

Check out our latest analysis for BiondVax Pharmaceuticals

What we can learn from BVXV's beta value

Zooming in on BiondVax Pharmaceuticals, we see it has a five year beta of 1.98. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If this beta value holds true in the future, BiondVax Pharmaceuticals shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 BiondVax Pharmaceuticals's revenue and earnings in the image below.

NasdaqCM:BVXV Income Statement May 9th 2020
NasdaqCM:BVXV Income Statement May 9th 2020

Could BVXV's size cause it to be more volatile?

With a market capitalisation of US$164m, BiondVax Pharmaceuticals is a very small company by global standards. It is quite likely to be unknown to most investors. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.

What this means for you:

Since BiondVax Pharmaceuticals tends to move up when the market is going up, and down when it's going down, potential investors may wish to reflect on the overall market, when considering the stock. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as BiondVax Pharmaceuticals’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for BVXV’s future growth? Take a look at our free research report of analyst consensus for BVXV’s outlook.

  2. Past Track Record: Has BVXV 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 BVXV's historicals for more clarity.

  3. Other Interesting Stocks: It's worth checking to see how BVXV 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 editorial-team@simplywallst.com. 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.

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. Thank you for reading.