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Anyone researching Huscoke Holdings Limited (HKG:704) 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. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the 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.
Check out our latest analysis for Huscoke Holdings
What we can learn from 704's beta value
Given that it has a beta of 1.16, we can surmise that the Huscoke Holdings share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Huscoke Holdings 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 Huscoke Holdings is growing earnings and revenue. You can take a look for yourself, below.
How does 704's size impact its beta?
Huscoke Holdings is a noticeably small company, with a market capitalisation of HK$463m. Most companies this size are not always actively traded. 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 Huscoke Holdings 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 704 is a good investment for you, we also need to consider important company-specific fundamentals such as Huscoke Holdings’s financial health and performance track record. I highly recommend you dive deeper by considering the following: