Should You Be Concerned About BaWang International (Group) Holding Limited's (HKG:1338) Historical Volatility?
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Anyone researching BaWang International (Group) Holding Limited (HKG:1338) might want to consider the historical volatility of the share price. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. 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. A stock with a beta below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.
See our latest analysis for BaWang International (Group) Holding
What 1338's beta value tells investors
Given that it has a beta of 0.86, we can surmise that the BaWang International (Group) Holding share price has not been strongly impacted by broader market volatility (over the last 5 years). This means that -- if history is a guide -- buying the stock would reduce the impact of overall market volatility in many portfolios (depending on the beta of the portfolio, of course). 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 BaWang International (Group) Holding's revenue and earnings in the image below.
How does 1338's size impact its beta?
BaWang International (Group) Holding is a noticeably small company, with a market capitalisation of HK$433m. Most companies this size are not always actively traded. Companies with market capitalisations around this size often show poor correlation with the broader market because market volatility is overshadowed by company specific events, or other factors. It's worth checking to see how often shares are traded, because very small companies with very low beta values are often only thinly traded.
What this means for you:
The BaWang International (Group) Holding doesn't usually show much sensitivity to the broader market. This could be for a variety of reasons. Typically, smaller companies have a low beta if their share price tends to move a lot due to company specific developments. Alternatively, an strong dividend payer might move less than the market because investors are valuing it for its income stream. In order to fully understand whether 1338 is a good investment for you, we also need to consider important company-specific fundamentals such as BaWang International (Group) Holding’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for 1338’s future growth? Take a look at our free research report of analyst consensus for 1338’s outlook.
Past Track Record: Has 1338 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 1338's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how 1338 measures up against other companies on valuation. You could start with this free list of prospective options.
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.
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. Thank you for reading.
