If you are looking to invest in Caesars Entertainment Corporation’s (NASDAQ:CZR), 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. 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. Different characteristics of a stock expose it to various levels of market risk, and the market as a whole represents a beta 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.

Check out our latest analysis for Caesars Entertainment

What is CZR’s market risk?

With a five-year beta of 0.33, Caesars Entertainment appears to be a less volatile company compared to the rest of the market. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. CZR’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 CZR's size and industry impact its risk?

With a market cap of USD $1.99B, CZR falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, CZR also operates in the hotels, restaurants and leisure industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap CZR but a low beta for the hotels, restaurants and leisure industry. This is an interesting conclusion, since both CZR’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.

Can CZR's asset-composition point to a higher 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 test CZR’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. CZR'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. As a result, this aspect of CZR indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. However, this is the opposite to what CZR’s actual beta value suggests, which is lower stock volatility relative to the market.

What this means for you:

Are you a shareholder? CZR may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as CZR is valuable to lower your risk of market exposure, in particular, during times of economic decline.

Are you a potential investor? Before you buy CZR, you should look at the stock in conjunction with their current portfolio holdings. CZR may be a great cushion during times of economic downturns due to its low beta. However, its high fixed cost may mean margins are squeezed if demand is low. I recommend taking into account its fundamentals as well before leaping into the investment.

Beta is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Caesars Entertainment for a more in-depth analysis of the stock to help you make a well-informed investment decision. But if you are not interested in Caesars Entertainment anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.