How Does Bhansali Engineering Polymers Limited (NSE:BEPL) Affect Your Portfolio Volatility?

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If you're interested in Bhansali Engineering Polymers Limited (NSE:BEPL), 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

See our latest analysis for Bhansali Engineering Polymers

What does BEPL's beta value mean to investors?

Given that it has a beta of 1.18, we can surmise that the Bhansali Engineering Polymers share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Bhansali Engineering Polymers shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see Bhansali Engineering Polymers's revenue and earnings in the image below.

How does BEPL's size impact its beta?

With a market capitalisation of ₹10.0b, Bhansali Engineering Polymers is a very small company by global standards. It is quite likely to be unknown to most investors. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.

What this means for you:

Beta only tells us that the Bhansali Engineering Polymers share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there's plenty more to learn. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Bhansali Engineering Polymers’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 BEPL’s future growth? Take a look at our free research report of analyst consensus for BEPL’s outlook.
2. Past Track Record: Has BEPL 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 BEPL's historicals for more clarity.
3. Other Interesting Stocks: It's worth checking to see how BEPL 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.