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If you own shares in China Silver Group Limited (HKG:815) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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. 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 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.
View our latest analysis for China Silver Group
What 815's beta value tells investors
Zooming in on China Silver Group, we see it has a five year beta of 1.32. 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, China Silver Group 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 China Silver Group is growing earnings and revenue. You can take a look for yourself, below.
Does 815's size influence the expected beta?
China Silver Group is a noticeably small company, with a market capitalisation of HK$1.0b. 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.