How Does Steel Authority of India Limited (NSE:SAIL) Affect Your Portfolio Volatility?
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Anyone researching Steel Authority of India Limited (NSE:SAIL) might want to consider the historical volatility of the share price. 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 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. 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.
Check out our latest analysis for Steel Authority of India
What we can learn from SAIL's beta value
With a beta of 0.98, (which is quite close to 1) the share price of Steel Authority of India has historically been about as voltile as the broader market. While history does not always repeat, this may indicate that the stock price will continue to be exposed to market risk, albeit not overly so. Beta is worth considering, but it's also important to consider whether Steel Authority of India is growing earnings and revenue. You can take a look for yourself, below.
Does SAIL's size influence the expected beta?
With a market capitalisation of ₹212b, Steel Authority of India is a pretty big company, even by global standards. It is quite likely well known to very many investors. We shouldn't be surprised to see a large company like this with a beta value quite close to the market average. Large companies often move roughly in line with the market. In part, that's because there are fewer individual events that are signficant enough to markedly change the value of the stock (compared to small companies, at least).
What this means for you:
Steel Authority of India has a beta value quite close to that of the overall market. That doesn't tell us much on its own, so it is probably worth considering whether the company is growing, if you're looking for stocks that will go up more than the overall market. In order to fully understand whether SAIL is a good investment for you, we also need to consider important company-specific fundamentals such as Steel Authority of India’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 SAIL’s future growth? Take a look at our free research report of analyst consensus for SAIL’s outlook.
Past Track Record: Has SAIL 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 SAIL's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how SAIL 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.
