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Anyone researching Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Co., Ltd. (HKG:1349) 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. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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. 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 Shanghai Fudan-Zhangjiang Bio-Pharmaceutical
What does 1349's beta value mean to investors?
Shanghai Fudan-Zhangjiang Bio-Pharmaceutical has a five-year beta of 0.93. 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. If the future looks like the past, we could therefore consider it likely that the stock price will experience share price volatility that is roughly similar to the overall market. 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 Shanghai Fudan-Zhangjiang Bio-Pharmaceutical fares in that regard, below.
Does 1349's size influence the expected beta?
Shanghai Fudan-Zhangjiang Bio-Pharmaceutical is a small cap stock with a market capitalisation of HK$5.2b. Most companies this size are actively traded. Small companies often have a high beta value because the stock price can move on relatively low capital flows. So it's interesting to note that this stock historically has a beta value quite close to one.
What this means for you:
Shanghai Fudan-Zhangjiang Bio-Pharmaceutical has a beta value quite close to that of the overall market. That doesn't tell us much on its own, so it is probably worth considering whether the company is growing, if you're looking for stocks that will go up more than the overall market. In order to fully understand whether 1349 is a good investment for you, we also need to consider important company-specific fundamentals such as Shanghai Fudan-Zhangjiang Bio-Pharmaceutical’s financial health and performance track record. I urge you to continue your research by taking a look at the following: