If you are looking to invest in China Oceanwide Holdings Limited’s (SEHK:715), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. The beta measures 715’s exposure to the wider market risk, which reflects changes in economic and political factors. Different characteristics of a stock expose it to various levels of market risk, and the broad market index represents a beta value of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.

View our latest analysis for China Oceanwide Holdings

An interpretation of 715’s beta

China Oceanwide Holdings’s beta of 0.85 indicates that the company is less volatile relative to the diversified market portfolio. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. 715’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.

Could 715’s size and industry cause it to be more volatile?

A market capitalisation of HK$8.88B puts 715 in the category of small-cap stocks, which tends to possess higher beta than larger companies. In addition to size, 715 also operates in the real estate industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the real estate industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by 715’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

Can 715’s asset-composition point to a higher beta?

An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive. I examine 715’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. 715’s fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. As a result, this aspect of 715 indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. However, this is the opposite to what 715’s actual beta value suggests, which is lower stock volatility relative to the market.

What this means for you:

You could benefit from lower risk during times of economic decline by holding onto 715. Take into account your portfolio sensitivity to the market before you invest in the stock, as well as where we are in the current economic cycle. Depending on the composition of your portfolio, 715 may be a valuable stock to hold onto in order to cushion the impact of a downturn. What I have not mentioned in my article here are important company-specific fundamentals such as China Oceanwide Holdings’s financial health and performance track record. I urge you to complete your research by taking a look at the following:

• 1. Financial Health: Is 715’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. Past Track Record: Has 715 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 715’s historicals for more clarity.

• 3. 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.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.