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How Does FinVolution Group (NYSE:FINV) Affect Your Portfolio Volatility?

If you're interested in FinVolution Group (NYSE:FINV), 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. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. 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 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 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. 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.

View our latest analysis for FinVolution Group

What does FINV's beta value mean to investors?

Given that it has a beta of 1.41, we can surmise that the FinVolution Group share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that FinVolution Group are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it's also important to consider whether FinVolution Group is growing earnings and revenue. You can take a look for yourself, below.

NYSE:FINV Income Statement, February 3rd 2020
NYSE:FINV Income Statement, February 3rd 2020

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

FinVolution Group is a small cap stock with a market capitalisation of US$620m. Most companies this size are actively traded. It has a relatively high beta, which is not unusual among small-cap stocks. Because it takes less capital to move the share price of a smaller company, actively traded small-cap stocks often have a higher beta that a similar large-cap stock.

What this means for you:

Since FinVolution Group has a reasonably high beta, it's worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as FinVolution Group’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for FINV’s future growth? Take a look at our free research report of analyst consensus for FINV’s outlook.

  2. Financial Health: Are FINV’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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.

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. Thank you for reading.