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If you own shares in Kamat Hotels (India) Limited (NSE:KAMATHOTEL) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 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. 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 Kamat Hotels (India)
What does KAMATHOTEL’s beta value mean to investors?
Given that it has a beta of 1.11, we can surmise that the Kamat Hotels (India) share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Kamat Hotels (India) shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. 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 Kamat Hotels (India)’s revenue and earnings in the image below.
How does KAMATHOTEL’s size impact its beta?
Kamat Hotels (India) is a noticeably small company, with a market capitalisation of ₹1.11b. 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.
What this means for you:
Since Kamat Hotels (India) 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 KAMATHOTEL is a good investment for you, we also need to consider important company-specific fundamentals such as Kamat Hotels (India)’s financial health and performance track record. I highly recommend you dive deeper by considering the following: