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Anyone researching Fujian Holdings Limited (HKG:181) might want to consider the historical volatility of the share price. 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 type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks on the market.
Some stocks are more sensitive to general market forces than others. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that ‘Volatility is far from synonymous with risk’, beta is still a useful factor to consider. To make good use of it you must first know 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.
Check out our latest analysis for Fujian Holdings
What we can learn from 181’s beta value
Given that it has a beta of 1.54, we can surmise that the Fujian Holdings share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Fujian Holdings are likely to rise strongly in times of greed, but sell off in times of fear. 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 Fujian Holdings’s revenue and earnings in the image below.
Could 181’s size cause it to be more volatile?
Fujian Holdings is a rather small company. It has a market capitalisation of HK$223m, 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 Fujian Holdings 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 181 is a good investment for you, we also need to consider important company-specific fundamentals such as Fujian Holdings’s financial health and performance track record. I urge you to continue your research by taking a look at the following: