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If you're interested in Shanghai Qingpu Fire-Fighting Equipment Co., Ltd. (HKG:8115), 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. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Beta is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is 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.
See our latest analysis for Shanghai Qingpu Fire-Fighting Equipment
What we can learn from 8115's beta value
Given that it has a beta of 1.13, we can surmise that the Shanghai Qingpu Fire-Fighting Equipment share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Shanghai Qingpu Fire-Fighting Equipment are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it's also important to consider whether Shanghai Qingpu Fire-Fighting Equipment is growing earnings and revenue. You can take a look for yourself, below.
How does 8115's size impact its beta?
With a market capitalisation of HK$111m, Shanghai Qingpu Fire-Fighting Equipment is a very small company by global standards. It is quite likely to be unknown to most investors. 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.