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Should You Be Concerned About Jinchuan Group International Resources Co. Ltd's (HKG:2362) Historical Volatility?

Simply Wall St

If you're interested in Jinchuan Group International Resources Co. Ltd (HKG:2362), 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. 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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 Jinchuan Group International Resources

What 2362's beta value tells investors

Zooming in on Jinchuan Group International Resources, we see it has a five year beta of 1.37. 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, Jinchuan Group International Resources shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how Jinchuan Group International Resources fares in that regard, below.

SEHK:2362 Income Statement, August 19th 2019

Could 2362's size cause it to be more volatile?

Jinchuan Group International Resources is a small company, but not tiny and little known. It has a market capitalisation of HK$7.9b, which means it would be on the radar of intstitutional investors. It's not particularly surprising that it has a higher beta than the overall market. That's because it takes less money to influence the share price of a smaller company, than a bigger company.

What this means for you:

Beta only tells us that the Jinchuan Group International Resources share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there's plenty more to learn. In order to fully understand whether 2362 is a good investment for you, we also need to consider important company-specific fundamentals such as Jinchuan Group International Resources’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Future Outlook: What are well-informed industry analysts predicting for 2362’s future growth? Take a look at our free research report of analyst consensus for 2362’s outlook.
  2. Past Track Record: Has 2362 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 2362's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how 2362 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.