How Does China Everbright Water Limited (SGX:U9E) Affect Your Portfolio Volatility?
If you're interested in China Everbright Water Limited (SGX:U9E), 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. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
Check out our latest analysis for China Everbright Water
What we can learn from U9E's beta value
Given that it has a beta of 1.38, we can surmise that the China Everbright Water share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that China Everbright Water are likely to rise strongly in times of greed, but sell off in times of fear. 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 China Everbright Water's revenue and earnings in the image below.
Does U9E's size influence the expected beta?
China Everbright Water is a small company, but not tiny and little known. It has a market capitalisation of S$923m, 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:
Since China Everbright Water tends to moves 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. In order to fully understand whether U9E is a good investment for you, we also need to consider important company-specific fundamentals such as China Everbright Water’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
Future Outlook: What are well-informed industry analysts predicting for U9E’s future growth? Take a look at our free research report of analyst consensus for U9E’s outlook.
Past Track Record: Has U9E 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 U9E's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how U9E 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.
