Does The China Longyuan Power Group Corporation Limited (HKG:916) Share Price Fall With The Market?
If you own shares in China Longyuan Power Group Corporation Limited (HKG:916) 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all 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. 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.
See our latest analysis for China Longyuan Power Group
What does 916's beta value mean to investors?
As it happens, China Longyuan Power Group has a five year beta of 1.07. This is fairly close to 1, so the stock has historically shown a somewhat similar level of volatility as the market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility going forward but it probably won't be particularly sensitive to it. Beta is worth considering, but it's also important to consider whether China Longyuan Power Group is growing earnings and revenue. You can take a look for yourself, below.
Does 916's size influence the expected beta?
China Longyuan Power Group is a fairly large company. It has a market capitalisation of HK$32b, which means it is probably on the radar of most investors. It's not overly surprising to see large companies with beta values reasonably close to the market average. After all, large companies make up a higher weighting of the index than do small companies.
What this means for you:
Since China Longyuan Power Group 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 916 is a good investment for you, we also need to consider important company-specific fundamentals such as China Longyuan Power Group’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 916’s future growth? Take a look at our free research report of analyst consensus for 916’s outlook.
Past Track Record: Has 916 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 916's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how 916 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.
