If you own shares in Kakatiya Cement Sugar and Industries Limited (NSE:KAKATCEM) 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
What we can learn from KAKATCEM’s beta value
Given that it has a beta of 1.16, we can surmise that the Kakatiya Cement Sugar and Industries share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Kakatiya Cement Sugar and Industries 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 Kakatiya Cement Sugar and Industries is growing earnings and revenue. You can take a look for yourself, below.
Does KAKATCEM’s size influence the expected beta?
Kakatiya Cement Sugar and Industries is a noticeably small company, with a market capitalisation of ₹1.4b. Most companies this size are not always actively traded. 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:
Beta only tells us that the Kakatiya Cement Sugar and Industries 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 Kakatiya Cement Sugar and Industries’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Future Outlook: What are well-informed industry analysts predicting for KAKATCEM’s future growth? Take a look at our free research report of analyst consensus for KAKATCEM’s outlook.
- Past Track Record: Has KAKATCEM 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 KAKATCEM’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how KAKATCEM measures up against other companies on valuation. You could start with this free list of prospective options.
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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.