If you are looking to invest in Metminco Limited’s (ASX:MNC), 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. There are two types of risks that affect the market value of a listed company such as MNC. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as MNC, because it is rare that an entire industry collapses at once. The second type is market risk, one that you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks in the market.

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.

Check out our latest analysis for Metminco

What does MNC's beta value mean?

With a five-year beta of 0.45, Metminco appears to be a less volatile company compared to the rest of the 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.MNC’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.

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

MNC, with its market capitalisation of AUD $5.22M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, MNC also operates in the materials 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 materials industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both MNC’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

How MNC's assets could affect its 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 MNC’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, MNC 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, MNC’s beta value conveys the same message.