In This Article:
Anyone researching The Hong Kong Building And Loan Agency Limited (HKG:145) might want to consider the historical volatility of the share price. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. 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 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 are more sensitive to general market forces than others. 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 below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.
Check out our latest analysis for Hong Kong Building And Loan Agency
What we can learn from 145’s beta value
Given that it has a beta of 1.35, we can surmise that the Hong Kong Building And Loan Agency share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Hong Kong Building And Loan Agency 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 Hong Kong Building And Loan Agency is growing earnings and revenue. You can take a look for yourself, below.
Does 145’s size influence the expected beta?
Hong Kong Building And Loan Agency is a noticeably small company, with a market capitalisation of HK$115m. Most companies this size are not always actively traded. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.
What this means for you:
Since Hong Kong Building And Loan Agency 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 145 is a good investment for you, we also need to consider important company-specific fundamentals such as Hong Kong Building And Loan Agency’s financial health and performance track record. I highly recommend you dive deeper by considering the following: