If you are looking to invest in Aethlon Medical Inc’s (NASDAQ:AEMD), 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. Generally, an investor should consider two types of risk that impact the market value of AEMD. The first risk to think about is company-specific, which can be diversified away by investing in other companies in order to lower your exposure to one particular stock. The second risk is market-wide, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks.

Not all stocks are expose to the same level of market risk. A popular measure of market risk for a stock is its beta, 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.

View our latest analysis for Aethlon Medical

What is AEMD’s market risk?

Aethlon Medical has a beta of 28.56, which means that the percentage change in its stock value will be higher than the entire market in times of booms and busts. A high level of beta means investors face higher risk associated with potential gains and losses driven by market movements.According to this value of beta,AEMD may be a stock for investors with a portfolio mainly made up of low-beta stocks. This is because during times of bullish sentiment, you can reap more of the upside with high-beta stocks compared to muted movements of low-beta holdings.

Does AEMD's size and industry impact the expected beta?

With a market cap of USD $14.15M, AEMD falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. But, AEMD’s industry, healthcare equipment and services, is considered to be defensive, which means it is less volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap AEMD but a low beta for the healthcare equipment and services industry. It seems as though there is an inconsistency in risks from AEMD’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.

Is AEMD's cost structure indicative of a high beta?

During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta.I examine AEMD’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, AEMD 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. However, this is the opposite to what AEMD’s actual beta value suggests, which is higher stock volatility relative to the market.