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Anyone researching Thelloy Development Group Limited (HKG:1546) 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. 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 are more sensitive to general market forces than others. 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.
See our latest analysis for Thelloy Development Group
What 1546’s beta value tells investors
Given that it has a beta of 1.83, we can surmise that the Thelloy Development Group share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Thelloy Development Group 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 Thelloy Development Group’s revenue and earnings in the image below.
Does 1546’s size influence the expected beta?
With a market capitalisation of HK$472.00m, Thelloy Development Group is a very small company by global standards. It is quite likely to be unknown to 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 Thelloy Development Group 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 1546 is a good investment for you, we also need to consider important company-specific fundamentals such as Thelloy Development Group’s financial health and performance track record. I urge you to continue your research by taking a look at the following: