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How Does Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE:HASI) Affect Your Portfolio Volatility?

Simply Wall St

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Anyone researching Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE:HASI) might want to consider the historical volatility of the share price. 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 other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.

Some stocks are more sensitive to general market forces than others. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that 'Volatility is far from synonymous with risk', beta is still a useful factor to consider. To make good use of it you must first know that the beta of the overall market is 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 Hannon Armstrong Sustainable Infrastructure Capital

What we can learn from HASI's beta value

Given that it has a beta of 1.12, we can surmise that the Hannon Armstrong Sustainable Infrastructure Capital share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Hannon Armstrong Sustainable Infrastructure Capital 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 Hannon Armstrong Sustainable Infrastructure Capital is growing earnings and revenue. You can take a look for yourself, below.

NYSE:HASI Income Statement, May 8th 2019

Does HASI's size influence the expected beta?

Hannon Armstrong Sustainable Infrastructure Capital is a small cap stock with a market capitalisation of US$1.7b. Most companies this size are actively traded. It is quite common to see a small-cap stock with a beta greater than one. In part, that's because relatively few investors can influence the price of a smaller company, compared to a large company.

What this means for you:

Since Hannon Armstrong Sustainable Infrastructure Capital 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. In order to fully understand whether HASI is a good investment for you, we also need to consider important company-specific fundamentals such as Hannon Armstrong Sustainable Infrastructure Capital’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 HASI’s future growth? Take a look at our free research report of analyst consensus for HASI’s outlook.
  2. Past Track Record: Has HASI 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 HASI's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how HASI 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.