If you're interested in Mongolian Mining Corporation (HKG:975), then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. 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 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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. 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.
What does 975's beta value mean to investors?
Given that it has a beta of 1.83, we can surmise that the Mongolian Mining share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Mongolian Mining shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Beta is worth considering, but it's also important to consider whether Mongolian Mining is growing earnings and revenue. You can take a look for yourself, below.
Could 975's size cause it to be more volatile?
Mongolian Mining is a noticeably small company, with a market capitalisation of HK$1.2b. Most companies this size are not always actively traded. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.
What this means for you:
Since Mongolian Mining 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Mongolian Mining’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Future Outlook: What are well-informed industry analysts predicting for 975’s future growth? Take a look at our free research report of analyst consensus for 975’s outlook.
- Past Track Record: Has 975 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 975's historicals for more clarity.
- Other Interesting Stocks: It's worth checking to see how 975 measures up against other companies on valuation. You could start with this free list of prospective options.
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