If you’re interested in Chasen Holdings Limited (SGX:5NV), 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. 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 sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all 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.
What we can learn from 5NV’s beta value
Zooming in on Chasen Holdings, we see it has a five year beta of 1.41. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If the past is any guide, we would expect that Chasen Holdings 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 Chasen Holdings’s revenue and earnings in the image below.
Does 5NV’s size influence the expected beta?
Chasen Holdings is a noticeably small company, with a market capitalisation of S$31m. Most companies this size are not always actively traded. 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:
Since Chasen Holdings 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. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Chasen Holdings’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for 5NV’s future growth? Take a look at our free research report of analyst consensus for 5NV’s outlook.
- Past Track Record: Has 5NV 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 5NV’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how 5NV 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.