Wednesday, 13 November 2019 | 14:43
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One Thing To Remember About The COSCO SHIPPING Development Co.

Tuesday, 07 May 2019 | 16:00

Anyone researching COSCO SHIPPING Development Co., Ltd. (HKG:2866) might want to consider the historical volatility of the share price. 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 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. Beta is a widely used metric to measure a stock’s exposure to market risk (volatility). Before we go on, it’s worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that ‘volatility is far from synonymous with risk.’ Having said that, beta can still be rather useful. The first thing to understand about beta is 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 2866’s beta value
Looking at the last five years, COSCO SHIPPING Development has a beta of 1.32. The fact that this is well above 1 indicates that its share price movements have shown sensitivity to overall market volatility. If this beta value holds true in the future, COSCO SHIPPING Development shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 COSCO SHIPPING Development fares in that regard, below.

Does 2866’s size influence the expected beta?
COSCO SHIPPING Development is a reasonably big company, with a market capitalisation of HK$33b. Most companies this size are actively traded with decent volumes of shares changing hands each day. It takes deep pocketed investors to influence the share price of a large company, so it’s a little unusual to see companies this size with high beta values. It may be that that this company is more heavily impacted by broader economic factors than most.

What this means for you:
Since COSCO SHIPPING Development 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 COSCO SHIPPING Development’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 2866’s future growth? Take a look at our free research report of analyst consensus for 2866’s outlook.
2. Past Track Record: Has 2866 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 2866’s historicals for more clarity.
3. Other Interesting Stocks: It’s worth checking to see how 2866 measures up against other companies on valuation. You could start with this free list of prospective options.
Source: Simply Wall St

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