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How Does Investing In Samudera Shipping Line Ltd (SGX:S56) Impact The Volatility Of Your Portfolio?

Simply Wall St

Anyone researching Samudera Shipping Line Ltd (SGX:S56) might want to consider the historical volatility of the share price. 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.

Check out our latest analysis for Samudera Shipping Line

What we can learn from S56's beta value

Given that it has a beta of 0.84, we can surmise that the Samudera Shipping Line share price has not been strongly impacted by broader market volatility (over the last 5 years). If history is a good guide, owning the stock should help ensure that your portfolio is not overly sensitive to market volatility. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how Samudera Shipping Line fares in that regard, below.

SGX:S56 Income Statement, August 31st 2019

Does S56's size influence the expected beta?

Samudera Shipping Line is a rather small company. It has a market capitalisation of S$78m, which means it is probably under the radar of most investors. It is not unusual for very small companies to have a low beta value, especially if only low volumes of shares are traded. Even when they are traded more actively, the share price is often more susceptible to company specific developments than overall market volatility.

What this means for you:

One potential advantage of owning low beta stocks like Samudera Shipping Line is that your overall portfolio won't be too sensitive to overall market movements. However, this can be a blessing or a curse, depending on what's happening in the broader market. In order to fully understand whether S56 is a good investment for you, we also need to consider important company-specific fundamentals such as Samudera Shipping Line’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 S56’s future growth? Take a look at our free research report of analyst consensus for S56’s outlook.
  2. Past Track Record: Has S56 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 S56's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how S56 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.