Before You Buy Dream Global Real Estate Investment Trust (TSE:DRG.UN), Consider Its Volatility

If you’re interested in Dream Global Real Estate Investment Trust (TSE:DRG.UN), 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. 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 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. A stock with a beta below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.

Check out our latest analysis for Dream Global Real Estate Investment Trust

What DRG.UN’s beta value tells investors

Given that it has a beta of 0.86, we can surmise that the Dream Global Real Estate Investment Trust share price has not been strongly impacted by broader market volatility (over the last 5 years). This means that — if history is a guide — buying the stock would reduce the impact of overall market volatility in many portfolios (depending on the beta of the portfolio, of course). 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 Dream Global Real Estate Investment Trust fares in that regard, below.

TSX:DRG.UN Income Statement, August 30th 2019
TSX:DRG.UN Income Statement, August 30th 2019

Does DRG.UN’s size influence the expected beta?

Dream Global Real Estate Investment Trust is a reasonably big company, with a market capitalisation of CA$2.8b. Most companies this size are actively traded with decent volumes of shares changing hands each day. It is a little unusual to see big companies like this trade on low beta values. Oftentimes there is some other clear influence on the share price, overshadowing market volatility.

What this means for you:

Since Dream Global Real Estate Investment Trust is not heavily influenced by market moves, its share price is probably far more dependend on company specific developments. It could pay to take a closer look at metrics such as revenue growth, earnings growth, and debt. In order to fully understand whether DRG.UN is a good investment for you, we also need to consider important company-specific fundamentals such as Dream Global Real Estate Investment Trust’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Future Outlook: What are well-informed industry analysts predicting for DRG.UN’s future growth? Take a look at our free research report of analyst consensus for DRG.UN’s outlook.
  2. Past Track Record: Has DRG.UN been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of DRG.UN’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how DRG.UN measures up against other companies on valuation. You could start with this free list of prospective options.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.