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How MicroPort Scientific Corporation (HKG:853) Can Impact Your Portfolio Volatility

Joel Foster

If you own shares in MicroPort Scientific Corporation (HKG:853) 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. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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 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.

See our latest analysis for MicroPort Scientific

What does 853’s beta value mean to investors?

Given that it has a beta of 0.84, we can surmise that the MicroPort Scientific share price has not been strongly impacted by broader market volatility (over the last 5 years). If history is a good guide, owning the stock should help ensure that your portfolio is not overly sensitive to market volatility. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how MicroPort Scientific fares in that regard, below.

SEHK:853 Income Statement Export January 8th 19
SEHK:853 Income Statement Export January 8th 19

How does 853’s size impact its beta?

MicroPort Scientific is a small cap stock with a market capitalisation of HK$11b. 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:

Since MicroPort Scientific is not heavily influenced by market moves, its share price is probably far more dependend on company specific developments. It could pay to take a closer look at metrics such as revenue growth, earnings growth, and debt. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as MicroPort Scientific’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

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  1. Future Outlook: What are well-informed industry analysts predicting for 853’s future growth? Take a look at our free research report of analyst consensus for 853’s outlook.

  2. Past Track Record: Has 853 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 853’s historicals for more clarity.

  3. Other Interesting Stocks: It’s worth checking to see how 853 measures up against other companies on valuation. You could start with this free list of prospective options.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.