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If you’re interested in Yuxing InfoTech Investment Holdings Limited (HKG:8005), 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. 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 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. 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.
See our latest analysis for Yuxing InfoTech Investment Holdings
What 8005’s beta value tells investors
Given that it has a beta of 1.47, we can surmise that the Yuxing InfoTech Investment Holdings share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Yuxing InfoTech Investment 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. 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 Yuxing InfoTech Investment Holdings’s revenue and earnings in the image below.
Does 8005’s size influence the expected beta?
Yuxing InfoTech Investment Holdings is a noticeably small company, with a market capitalisation of HK$703m. Most companies this size are not always actively traded. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.