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How Does Investing In Tianjin Development Holdings Limited (HKG:882) Impact The Volatility Of Your Portfolio?

Simply Wall St

Anyone researching Tianjin Development Holdings Limited (HKG:882) 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. 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 is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is 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 Tianjin Development Holdings

What we can learn from 882's beta value

Zooming in on Tianjin Development Holdings, we see it has a five year beta of 0.84. This is below 1, so historically its share price has been rather independent from the market. This means that -- if history is a guide -- buying the stock would reduce the impact of overall market volatility in many portfolios (depending on the beta of the portfolio, of course). Beta is worth considering, but it's also important to consider whether Tianjin Development Holdings is growing earnings and revenue. You can take a look for yourself, below.

SEHK:882 Income Statement, October 22nd 2019

Could 882's size cause it to be more volatile?

Tianjin Development Holdings is a noticeably small company, with a market capitalisation of HK$2.4b. Most companies this size are not always actively traded. 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 Tianjin Development Holdings 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Tianjin Development Holdings’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 882’s future growth? Take a look at our free research report of analyst consensus for 882’s outlook.
  2. Past Track Record: Has 882 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 882's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how 882 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.