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Should You Be Concerned About SITC International Holdings Company Limited's (HKG:1308) Historical Volatility?

Simply Wall St

If you own shares in SITC International Holdings Company Limited (HKG:1308) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

View our latest analysis for SITC International Holdings

What 1308's beta value tells investors

With a beta of 1.09, (which is quite close to 1) the share price of SITC International Holdings has historically been about as voltile as the broader market. If the future looks like the past, we could therefore consider it likely that the stock price will experience share price volatility that is roughly similar to the overall market. 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 SITC International Holdings's revenue and earnings in the image below.

SEHK:1308 Income Statement, April 19th 2019

How does 1308's size impact its beta?

SITC International Holdings is a fairly large company. It has a market capitalisation of HK$24b, which means it is probably on the radar of most investors. We shouldn't be surprised to see a large company like this with a beta value quite close to the market average. Large companies often move roughly in line with the market. In part, that's because there are fewer individual events that are signficant enough to markedly change the value of the stock (compared to small companies, at least).

What this means for you:

Since SITC International Holdings has a beta close to one, it will probably show a positive return when the market is moving up, based on history. If you're trying to generate better returns than the market, it would be worth thinking about other metrics such as cashflows, dividends and revenue growth might be a more useful guide to the future. In order to fully understand whether 1308 is a good investment for you, we also need to consider important company-specific fundamentals such as SITC International Holdings’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 1308’s future growth? Take a look at our free research report of analyst consensus for 1308’s outlook.
  2. Past Track Record: Has 1308 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 1308's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how 1308 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.