If you are a shareholder in Clear Channel Outdoor Holdings Inc’s (NYSE:CCO), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. CCO 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. Different characteristics of a stock expose it to various levels of market risk, and the market as a whole represents a beta 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 Clear Channel Outdoor Holdings

What does CCO’s beta value mean?

Clear Channel Outdoor Holdings’s five-year beta of 1.7 means that the company’s value will swing up by more than the market during prosperous times, but also drop down by more in times of downturns. This level of volatility indicates bigger risk for investors who passively invest in the stock market index. According to this value of beta, CCO can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.

Could CCO’s size and industry cause it to be more volatile?

CCO, with its market capitalisation of US$1.81B, is a small-cap stock, which generally have higher beta than similar companies of larger size. But, CCO’s industry, media, is considered to be defensive, which means it is less volatile than the market over the economic cycle. Therefore, investors can expect a high beta associated with the size of CCO, but a lower beta given the nature of the industry it operates in. This is an interesting conclusion, since its industry suggests CCO should be less volatile than it actually is. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

How CCO’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 CCO’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, CCO seems to have a smaller dependency on fixed costs to generate revenue. 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. This outcome contradicts CCO’s current beta value which indicates an above-average volatility.