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Anyone researching Dalmia Bharat Sugar and Industries Limited (NSE:DALMIASUG) might want to consider the historical volatility of the share price. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. 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 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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.
See our latest analysis for Dalmia Bharat Sugar and Industries
What does DALMIASUG's beta value mean to investors?
Zooming in on Dalmia Bharat Sugar and Industries, we see it has a five year beta of 1.67. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If this beta value holds true in the future, Dalmia Bharat Sugar and Industries shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see Dalmia Bharat Sugar and Industries's revenue and earnings in the image below.
How does DALMIASUG's size impact its beta?
Dalmia Bharat Sugar and Industries is a rather small company. It has a market capitalisation of ₹7.5b, which means it is probably under the radar of 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.
What this means for you:
Since Dalmia Bharat Sugar and Industries 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. In order to fully understand whether DALMIASUG is a good investment for you, we also need to consider important company-specific fundamentals such as Dalmia Bharat Sugar and Industries’s financial health and performance track record. I highly recommend you dive deeper by considering the following: