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For Public Joint Stock Company Chelyabinsk Metallurgical Plant’s (MISX:CHMK) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. CHMK 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. Not all stocks are expose to the same level of market risk, and the market as a whole represents a beta value of one. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
Check out our latest analysis for Chelyabinsk Metallurgical Plant
What does CHMK’s beta value mean?
Chelyabinsk Metallurgical Plant’s beta of 0.04 indicates that the company is less volatile relative to the diversified market portfolio. 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. CHMK’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
Could CHMK’s size and industry cause it to be more volatile?
A market capitalisation of RUРУБ8.77B puts CHMK in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, CHMK’s industry, metals and mining, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap CHMK but a low beta for the metals and mining industry. It seems as though there is an inconsistency in risks portrayed by CHMK’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Can CHMK’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 examine CHMK’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. CHMK’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 CHMK 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. However, this is the opposite to what CHMK’s actual beta value suggests, which is lower stock volatility relative to the market.