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If you own shares in Zenith Minerals Limited (

ASX:ZNC

) 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.

Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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. 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 Zenith Minerals

What does ZNC’s beta value mean to investors?

Given that it has a beta of 1.09, we can surmise that the Zenith Minerals share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Zenith Minerals 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 Zenith Minerals fares in that regard, below.

ASX:ZNC Income Statement Export February 1st 19

Does ZNC’s size influence the expected beta?

Zenith Minerals is a rather small company. It has a market capitalisation of AU$13m, which means it is probably under the radar of most investors. 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.

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What this means for you:

Since Zenith Minerals 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. In order to fully understand whether ZNC is a good investment for you, we also need to consider important company-specific fundamentals such as Zenith Minerals’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

Financial Health

: Are ZNC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our

financial health checks here

.

Past Track Record

: Has ZNC 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 ZNC’s historicals

for more clarity.

Other High-Performing Stocks

: Are there other stocks that provide better prospects with proven track records? Explore our

free list of these great stocks here

.

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

[email protected]

.

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