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What Kind Of Share Price Volatility Should You Expect For Banca Monte dei Paschi di Siena S.p.A. (BIT:BMPS)?

Simply Wall St

If you're interested in Banca Monte dei Paschi di Siena S.p.A. (BIT:BMPS), 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient 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.

See our latest analysis for Banca Monte dei Paschi di Siena

What we can learn from BMPS's beta value

Looking at the last five years, Banca Monte dei Paschi di Siena has a beta of 1.93. The fact that this is well above 1 indicates that its share price movements have shown sensitivity to overall market volatility. If this beta value holds true in the future, Banca Monte dei Paschi di Siena 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 Banca Monte dei Paschi di Siena is growing earnings and revenue. You can take a look for yourself, below.

BIT:BMPS Income Statement, December 10th 2019

Does BMPS's size influence the expected beta?

With a market capitalisation of €1.6b, Banca Monte dei Paschi di Siena is a small cap stock. However, it is big enough to catch the attention of professional investors. It is quite common to see a small-cap stock with a beta greater than one. In part, that's because relatively few investors can influence the price of a smaller company, compared to a large company.

What this means for you:

Since Banca Monte dei Paschi di Siena 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 BMPS is a good investment for you, we also need to consider important company-specific fundamentals such as Banca Monte dei Paschi di Siena’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 BMPS’s future growth? Take a look at our free research report of analyst consensus for BMPS’s outlook.
  2. Past Track Record: Has BMPS 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 BMPS's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how BMPS measures up against other companies on valuation. You could start with this free list of prospective options.

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.

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. Thank you for reading.