Anyone researching China e-Wallet Payment Group Limited (HKG:802) 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 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. 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.
What we can learn from 802’s beta value
Looking at the last five years, China e-Wallet Payment Group has a beta of 1.45. The fact that this is well above 1 indicates that its share price movements have shown sensitivity to overall market volatility. Based on this history, investors should be aware that China e-Wallet Payment Group are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it’s also important to consider whether China e-Wallet Payment Group is growing earnings and revenue. You can take a look for yourself, below.
How does 802’s size impact its beta?
China e-Wallet Payment Group is a rather small company. It has a market capitalisation of HK$431m, which means it is probably under the radar of most investors. 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 China e-Wallet Payment 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 802 is a good investment for you, we also need to consider important company-specific fundamentals such as China e-Wallet Payment Group’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Financial Health: Are 802’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has 802 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 802’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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 email@example.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.