Beta Analysis

Introduction:
The beta coefficient is basically used to determine the return of a particular
investment. It is a measure of the volatility or sensitivity of a stock to the changes
and fluctuations in the market.
Analysis:
The beta we calculated for the stock OGDC equals to 1.146. This means that if the
market moves up by 10 percent the stock price will increase by 11.46 percent,
similarly if the market falls by 10 percent the stock price will decline by 11.46
percent. Since the beta of the stock is close to one it can be said that the return of the
stock will move up and down with the market return average, it will be
approximately as risky as the market. Any stock with a beta equal to 1 will be less
risky than OGDC. Since OGDC has a beta of 1.146 therefore although there is a risk
but there is a higher chance and potential of return.
In the case of OGDC the change in oil prices across the globe cause changes in its
price. OGDC is exposed to international oil prices’ fluctuations which in turn are
dependent upon the supply and demand of crude oil. Oil and gas reserves
occurrences across the country also play a role in the price changes of OGDC.
The political unrest in Pakistan is causing fluctuations in the price. The government
of Pakistan emphasizes on oil companies to use in environment friendly means in
production and exploration. Hence this causes OGDC to be exposed to exploration,
drilling and production risk but these can be minimized with proper management.
If we glance at the cash flows of OGDC across the years we can see fluctuations.
This causes a level of uncertainty and a risk of investing in OGDC. Along with
fluctuations in cash flows the stock price also showed a varying trend and they were
low as compared to previous years from 2011 to 2015. Such variation in prices
OGDC can constitute as a factor of high risk.
OGDC provides the stockholders a chance of getting higher returns as compared to
the market, as its beta is 1.146. With a higher potential of return there is still a risk
involved.