Risk of Investing – Comparison of SBITOP Constituents

Today, we are bringing you an overview of the risk of investment of SBITOP constituents, with data for the last 3 years.

Recently, we published our overview of the risk of investing in Croatia, with an analysis of the CROBEX index and its constituents. You can access that analysis here. Today, we decided to bring you a similar overview of another local market, i.e. Slovenia. As compared to the CROBEX index, the SBITOP index is not only smaller (10 companies vs. 24, with the usual number being 9 companies and the newest addition, Equinox, making up the 10) but its companies are also more liquid. Overall, in fact, the number of listed companies in the Slovenian market is a lot smaller. We would like to note that Equinox is excluded from the overview, as it was only added to the index last week.

With that out of the way, how did we calculate the risk? As in our Croatia overview, we used the standard deviation of daily price changes of the SBITOP constituents. The standard deviation could be considered a measure of risk, as it implies a dispersion of the price from some mean. This dispersion would imply volatility, and volatility is one of the measures of risk, one of the main ones in fact.

One thing that needs to be noted here, is unlike the CROBEX comparison, where most of the companies in the index did not have an active market maker, almost all the SBITOP constituents have a market maker. Why does this matter? In measuring standard deviation as a measure of risk, price changes are influenced by several factors. First of all, of course, the difference between the bid and ask prices, the so-called bid/ask spread. Also, they are under the influence of liquidity, both in the terms of the available shares at any given price point, but also the amount of money required to move the price share, and of course, the ability to enter or vacate a position. All of these things are helped by a market maker, as they reduce the bid/ask spread, increase the available number of shares, and thus “reduce” higher capital requirements. These refer to the fact that if you believe in some companies, and are willing to invest in them, a company with a lower bid/ask spread means that you will influence the price less if you buy a more significant number of shares, but also that you will decrease the price less if you decide to vacate your position. This of course is, as compared to stocks with higher bid/ask spreads.

So having all of this in mind, how risky are the Slovenian companies to invest in?

Standard deviation (risk) of SBITOP constituents (2020 – 2023 YTD, %)

Source: Bloomberg, InterCapital Research

The companies with the highest standard deviation, are Unior, at 2.52%, followed by Luka Koper, at 1.86%, and Cinkarna Celje, at 1.79%. Unior and Luka Koper are the only companies here that operate without a market maker. Even so, Unior’s average bid/ask spread in the last 3 years amounted to only 1.06%, while the average daily turnover amounted to EUR 12.4k. Luka Koper operates with a bid/ask spread of 1.95% and an average daily turnover of EUR 46.8k. Cinkarna Celje, which does have a market maker, has an average bid/ask spread of 1.48%, and an average daily turnover of 75.8k.

On the flip side, the lowest standard deviation is recorded by Triglav and Petrol, both at 1.43%. Triglav recorded an average bid/ask spread of 1.39%, and an average daily turnover of EUR 107.4k. Petrol also has a similar bid/ask spread of 1.42% in the observed period, with a turnover of EUR 146.3k.

Compared to Croatia, these numbers show us that despite periods of both growth and decline (2021 for growth, 2022 for decline), the average bid/ask spread, as well as the volatility of the price changes on the Slovenian market are quite low. Combined with a turnover that, whilst not high by global standards, is quite high for the region, larger amounts of shares can be bought/sold without affecting the price. Also taking into account that Slovenian companies have solid dividend yields, that are app. 2-2.5x higher than in Croatia, holding these shares for longer will yield solid returns even if the share price themselves remain stagnant, or decline. It’s only a loss once the decision to sell the share is made, until then, there is also potential for further returns. And as many global investors and analysts know, investing, in the long run, has proven historically to always yield returns, and periods of downturn usually don’t last very long, especially as compared to periods of bull runs.

Category : Flash News

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