Anyone researching HEC Infra Projects Limited (NSE:HECPROJECT) 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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. 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.
See our latest analysis for HEC Infra Projects
What does HECPROJECT's beta value mean to investors?
Given that it has a beta of 1.10, we can surmise that the HEC Infra Projects share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, HEC Infra Projects 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 HEC Infra Projects's revenue and earnings in the image below.
Does HECPROJECT's size influence the expected beta?
HEC Infra Projects is a rather small company. It has a market capitalisation of ₹252m, which means it is probably under the radar of 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:
Since HEC Infra Projects 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 HECPROJECT is a good investment for you, we also need to consider important company-specific fundamentals such as HEC Infra Projects’s financial health and performance track record. I urge you to continue your research by taking a look at the following: