For Sino Vision Worldwide Holdings Limited’s (SEHK:8086) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. The beta measures 8086’s exposure to the wider market risk, which reflects changes in economic and political factors. Not every stock is exposed to the same level of market risk, and the market as a whole represents a beta value of one. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.

Check out our latest analysis for Sino Vision Worldwide Holdings

What is 8086’s market risk?

With a five-year beta of 0.9, Sino Vision Worldwide Holdings appears to be a less volatile company compared to the rest of the market. This means that the change in 8086’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. 8086’s beta indicates it is a stock that investors may find valuable if they want to reduce the overall market risk exposure of their stock portfolio.

Could 8086’s size and industry cause it to be more volatile?

A market capitalisation of HK$777.34M puts 8086 in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the internet industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the internet industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both 8086’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

Can 8086’s asset-composition point to a higher beta?

During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta. I examine 8086’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, 8086 doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect 8086 to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. Similarly, 8086’s beta value conveys the same message.

What this means for you:

You could benefit from lower risk during times of economic decline by holding onto 8086. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. In order to fully understand whether 8086 is a good investment for you, we also need to consider important company-specific fundamentals such as Sino Vision Worldwide Holdings’s financial health and performance track record. I urge you to complete your research by taking a look at the following:

1. Financial Health: Is 8086’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

2. Past Track Record: Has 8086 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of 8086’s historicals for more clarity.

3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.