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If you’re interested in Bionomics Limited (ASX:BNO), 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 second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the 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.
View our latest analysis for Bionomics
What does BNO’s beta value mean to investors?
Given that it has a beta of 1.51, we can surmise that the Bionomics share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Bionomics 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 Bionomics is growing earnings and revenue. You can take a look for yourself, below.
Could BNO’s size cause it to be more volatile?
Bionomics is a noticeably small company, with a market capitalisation of AU$65m. Most companies this size are not always actively traded. 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 Bionomics tends to moves up when the market is going up, and down when it’s going down, potential investors may wish to reflect on the overall market, when considering the stock. In order to fully understand whether BNO is a good investment for you, we also need to consider important company-specific fundamentals such as Bionomics’s financial health and performance track record. I highly recommend you dive deeper by considering the following: