If you are a shareholder in COSCO Shipping International (Singapore) Co Ltd’s (SGX:F83), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. Not every stock is exposed to the same level of market risk, and the broad market index represents a beta value of one. A stock with a beta greater than one is considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.

View our latest analysis for COSCO Shipping International (Singapore)

An interpretation of F83’s beta

COSCO Shipping International (Singapore) has a beta of 1.37, which means that its stock price experiences greater change than most. Based on this beta value, F83 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 F83’s size and industry impact the expected beta?

F83, with its market capitalisation of S$906.89m, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the machinery industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect higher beta for small-cap stocks in a cyclical industry compared to larger stocks in a defensive industry. This is consistent with F83’s individual beta value we discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.

How F83’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 test F83’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. F83’s fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. Thus, we can expect F83 to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. Similarly, F83’s beta value conveys the same message.