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If you’re interested in i-CABLE Communications Limited (HKG:1097), then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. Beta can be a useful tool to understand how much a stock is influenced by market risk (volatility). However, Warren Buffett said ‘volatility is far from synonymous with risk’ in his 2014 letter to investors. So, while useful, beta is not the only metric to consider. To use beta as an investor, you must first understand that the overall market has a beta of 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 i-CABLE Communications
What does 1097’s beta value mean to investors?
Given that it has a beta of 1.66, we can surmise that the i-CABLE Communications share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that i-CABLE Communications are likely to rise strongly in times of greed, but sell off in times of fear. 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 i-CABLE Communications fares in that regard, below.
Does 1097’s size influence the expected beta?
i-CABLE Communications is a noticeably small company, with a market capitalisation of HK$739m. Most companies this size are not always actively traded. 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 i-CABLE Communications has a reasonably high beta, it’s worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. In order to fully understand whether 1097 is a good investment for you, we also need to consider important company-specific fundamentals such as i-CABLE Communications’s financial health and performance track record. I highly recommend you dive deeper by considering the following: