If you're interested in Xiamen International Port Co., Ltd (HKG:3378), 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 are more sensitive to general market forces than others. 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.
Check out our latest analysis for Xiamen International Port
What we can learn from 3378's beta value
Given that it has a beta of 1.28, we can surmise that the Xiamen International Port share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Xiamen International Port 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 Xiamen International Port is growing earnings and revenue. You can take a look for yourself, below.
How does 3378's size impact its beta?
With a market capitalisation of HK$2.9b, Xiamen International Port is a very small company by global standards. It is quite likely to be unknown to most investors. 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:
Beta only tells us that the Xiamen International Port share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there's plenty more to learn. In order to fully understand whether 3378 is a good investment for you, we also need to consider important company-specific fundamentals such as Xiamen International Port’s financial health and performance track record. I highly recommend you dive deeper by considering the following: