Does The Venture Minerals Limited (ASX:VMS) Share Price Fall With The Market?

If you own shares in Venture Minerals Limited (ASX:VMS) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 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. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that ‘Volatility is far from synonymous with risk’, beta is still a useful factor to consider. To make good use of it you must first know 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.

View our latest analysis for Venture Minerals

What does VMS’s beta value mean to investors?

Looking at the last five years, Venture Minerals has a beta of 0.91. The fact that this is well below 1 indicates that its share price movements haven’t historically been very sensitive to overall market volatility. If history is a good guide, owning the stock should help ensure that your portfolio is not overly sensitive to market volatility. Beta is worth considering, but it’s also important to consider whether Venture Minerals is growing earnings and revenue. You can take a look for yourself, below.

ASX:VMS Income Statement, April 5th 2019
ASX:VMS Income Statement, April 5th 2019

Does VMS’s size influence the expected beta?

Venture Minerals is a rather small company. It has a market capitalisation of AU$11m, which means it is probably under the radar of most investors. Very small companies often have a low beta value because their share prices are not well correlated with market volatility. This could be because the price is reacting to company specific events. Alternatively, the shares may not be actively traded.

What this means for you:

One potential advantage of owning low beta stocks like Venture Minerals is that your overall portfolio won’t be too sensitive to overall market movements. However, this can be a blessing or a curse, depending on what’s happening in the broader market. In order to fully understand whether VMS is a good investment for you, we also need to consider important company-specific fundamentals such as Venture Minerals’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Financial Health: Are VMS’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.
  2. Past Track Record: Has VMS 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 VMS’s historicals for more clarity.
  3. 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 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.