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Does Market Volatility Impact Mangalam Cement Limited's (NSE:MANGLMCEM) Share Price?

Simply Wall St

If you own shares in Mangalam Cement Limited (NSE:MANGLMCEM) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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 Mangalam Cement

What MANGLMCEM's beta value tells investors

Zooming in on Mangalam Cement, we see it has a five year beta of 1.15. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If the past is any guide, we would expect that Mangalam Cement shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it's also important to consider whether Mangalam Cement is growing earnings and revenue. You can take a look for yourself, below.

NSEI:MANGLMCEM Income Statement, July 22nd 2019

Does MANGLMCEM's size influence the expected beta?

Mangalam Cement is a rather small company. It has a market capitalisation of ₹6.2b, which means it is probably under the radar of most investors. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

What this means for you:

Since Mangalam Cement tends to moves up when the market is going up, and down when it's going down, potential investors may wish to reflect on the overall market, when considering the stock. In order to fully understand whether MANGLMCEM is a good investment for you, we also need to consider important company-specific fundamentals such as Mangalam Cement’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Future Outlook: What are well-informed industry analysts predicting for MANGLMCEM’s future growth? Take a look at our free research report of analyst consensus for MANGLMCEM’s outlook.
  2. Past Track Record: Has MANGLMCEM 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 MANGLMCEM's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how MANGLMCEM 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.