If you are looking to invest in 4iG Nyrt’s (BUSE:4IG), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. 4IG is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not all stocks are expose to the same level of market risk, and the market as a whole represents a beta value of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
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An interpretation of 4IG’s beta
4iG Nyrt’s beta of 0.2 indicates that the stock value will be less variable compared to the whole stock market. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. 4IG’s beta indicates it is a stock that investors may find valuable if they want to reduce the overall market risk exposure of their stock portfolio.
How does 4IG’s size and industry impact its risk?
4IG, with its market capitalisation of FT4.18B, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, 4IG also operates in the it industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the it industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by 4IG’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How 4IG’s assets could affect its beta
An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive. I examine 4IG’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, 4IG doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. Similarly, 4IG’s beta value conveys the same message.