Should You Be Concerned About Killam Apartment Real Estate Investment Trust’s (TSE:KMP.UN) Historical Volatility?

If you own shares in Killam Apartment Real Estate Investment Trust (TSE:KMP.UN) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. 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 are more sensitive to general market forces than others. 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. 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 Killam Apartment Real Estate Investment Trust

What does KMP.UN’s beta value mean to investors?

Given that it has a beta of 0.87, we can surmise that the Killam Apartment Real Estate Investment Trust share price has not been strongly impacted by broader market volatility (over the last 5 years). This suggests that including it in your portfolio will reduce volatility arising from broader market movements, assuming your portfolio’s weighted average beta is higher than 0.87. Beta is worth considering, but it’s also important to consider whether Killam Apartment Real Estate Investment Trust is growing earnings and revenue. You can take a look for yourself, below.

TSX:KMP.UN Income Statement April 8th 2020
TSX:KMP.UN Income Statement April 8th 2020

Could KMP.UN’s size cause it to be more volatile?

Killam Apartment Real Estate Investment Trust is a small cap stock with a market capitalisation of CA$1.6b. Most companies this size are actively traded. Small companies often have a high beta value, but they can be heavily influenced by company-specific events. This might explain why this stock has a low beta.

What this means for you:

One potential advantage of owning low beta stocks like Killam Apartment Real Estate Investment Trust 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. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Killam Apartment Real Estate Investment Trust’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Financial Health: Are KMP.UN’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 KMP.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 KMP.UN’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.

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.

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. Thank you for reading.