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How Does Klaria Pharma Holding AB (publ.) (STO:KLAR) Affect Your Portfolio Volatility?

Simply Wall St

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If you own shares in Klaria Pharma Holding AB (publ.) (STO:KLAR) 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The second type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the 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.

View our latest analysis for Klaria Pharma Holding AB (publ.)

What does KLAR's beta value mean to investors?

Zooming in on Klaria Pharma Holding AB (publ.), we see it has a five year beta of 1.78. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If this beta value holds true in the future, Klaria Pharma Holding AB (publ.) shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see Klaria Pharma Holding AB (publ.)'s revenue and earnings in the image below.

OM:KLAR Income Statement, June 18th 2019

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

Klaria Pharma Holding AB (publ.) is a noticeably small company, with a market capitalisation of kr302m. Most companies this size are not always actively traded. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.

What this means for you:

Since Klaria Pharma Holding AB (publ.) 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 KLAR is a good investment for you, we also need to consider important company-specific fundamentals such as Klaria Pharma Holding AB (publ.)’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Financial Health: Are KLAR’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.
  2. 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.

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.