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Anyone researching Emkay Global Financial Services Limited (NSE:EMKAY) 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 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.
View our latest analysis for Emkay Global Financial Services
What EMKAY's beta value tells investors
Emkay Global Financial Services has a five-year beta of 0.97. This is reasonably close to the market beta of 1, so the stock has in the past displayed similar levels of volatility to the overall market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility going forward but it probably won't be particularly sensitive to it. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how Emkay Global Financial Services fares in that regard, below.
Does EMKAY's size influence the expected beta?
With a market capitalisation of ₹1.4b, Emkay Global Financial Services is a very small company by global standards. It is quite likely to be unknown to most investors. Companies this small are usually more volatile than the market, whether or not that volatility is correlated. Therefore, it's a bit surprising to see that this stock has a beta value so close to the overall market.
What this means for you:
Since Emkay Global Financial Services has a beta close to one, it will probably show a positive return when the market is moving up, based on history. If you're trying to generate better returns than the market, it would be worth thinking about other metrics such as cashflows, dividends and revenue growth might be a more useful guide to the future. In order to fully understand whether EMKAY is a good investment for you, we also need to consider important company-specific fundamentals such as Emkay Global Financial Services’s financial health and performance track record. I urge you to continue your research by taking a look at the following: