IH Bulgaria is SOFIX's Most Volatile Company, Petrol With Negative Beta

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IH Bulgaria is SOFIX's Most Volatile Company, Petrol With Negative Beta

The beta coefficient measures the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. It is calculated using regression analysis, and we can think of beta as the tendency of a security's returns to respond to swings in the market.

It is one of the most commonly used financial coefficients. Usually the market or the broadest index measuring the market is the determining point. In the US this is the broad S&P 500, its beta is below 1.

A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.

The stocks that have a beta of less than 1 offer the possibility of a higher rate of return, but they also pose more risk.

Although the Beta coefficient measures the market risk in general, there are some problematic issues. First of all, it is calculated on the basis of past data, which does not guarantee the prices will continue to change in the same way.

It also does not reflect changes that might have taken place within the companies, even though some of these may play an important role in its future.

It is possible to have a negative coefficient. This would mean that the stock price moves in a direction opposite to that of the market. This is often considered a very good quality when looking for hedging assets, or when one wants to insure one's portfolio in case of a negative trend.

Very often investors are using the coefficient when choosing stocks for their short-term investing plans. They seek assets with higher volatility when a correction or a shift in the trend is expected. In cases like these and in periods of sharp swings for indexes, it is preferable to rely on stocks with higher coefficient.

The beta coefficient of SOFIX stocks will no doubt be of interest for Bulgarian investors. In the case of SOFIX, its own change is the benchmark, and the beta of the sixteen blue chips mirrors their price change over the past one year, based on weekly statistics of the price on the first day of the trade week. The first data on SOFIX is from 15 January 2007, the latest is from yesterday January 28.

We have to note here that we are including only the companies that are currently components of SOFIX, regardless of the several changes that have taken place within it and the capital increases of some companies. We will consider January 21 to be the first date for Kaolin, since its shares were then floated on BSE.

A conclusion we may draw from looking at the figures is that in spite of the sudden shifts in the prices of some stocks, the coefficient of all of them is below 1.5.

Also, all three cases are present – there are stocks with beta higher than 1, below 1 and negative. The beta of nine stocks is higher than 1. These, as we already mentioned, are the stock which are more volatile than the market.

Industrial Holding Bulgaria has the highest beta- 1.43, followed by Central Cooperative Bank (1.35) and Orgachim (1.23).

Toplivo is most in unison with SOFIX. The company's beta coefficient is 1.01. Kaolin's is slightly higher – 1.03.

Six blue chips have a beta of less than 1, which means they are least influenced by market swings and pose the lowest risk.

These are Albena (0.98), Sparky Eltos (0.81), Neochim (0.78), and the least volatile stock in SOFIX, according to beta coefficient is Elana Agricultural Land REIT (0.12).

We also have a negative beta example – Petrol (-0.5).

More details on SOFIX are given in the chart below:

CompanyBeta
Industrial Holding Bulgaria*1,43
Central Cooperative Bank**1,35
Orgachim1,23
Chimimport1,22
Monbat1,2
Euroins****1,18
M+S Hydraulic1,16
Kaolin*****1,03
Toplivo1,01
Albena0,98
Sparky Eltos0,81
Neochim0,78
Bulgarian-American Credit Bank0,7
Sopharma0,62
Elana Agricultural Land REIT0,12
Petrol-0,05

Source: Bulgarian Stock Exchange

*Capital increase (price corrected as of September 10)
**Capital increase (price corrected as of July 11)
***Capital increase (price corrected as of August 31)
****Capital increase (price corrected as of July 11)
*****floated May 21
******capital increase filed twice, one increase using own funds (price corrected June 27 and October 12)

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