If you are looking to invest in Celgene Corporation’s (NASDAQ:CELG), 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 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 Celgene

What is CELG’s market risk?

Celgene has a beta of 1.9, 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. Based on this beta value, CELG will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.

How does CELG's size and industry impact its risk?

CELG has a market capitalization of USD $111.85B, putting it in the category of established companies, which are found to experience less relative risk compared to small-sized companies. Moreover, CELG’s industry, biotechnology, is considered to be defensive, which means it is more volatile than the market over the economic cycle. It seems as though there is an inconsistency in risks portrayed by CELG’s size and industry relative to its actual beta value. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.

How CELG'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 CELG’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since CELG’s fixed assets are only 5.02% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect CELG to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. This outcome contradicts CELG’s current beta value which indicates an above-average volatility.