For Senior Housing Properties Trust’s (NASDAQ:SNH) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. 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. 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.

See our latest analysis for Senior Housing Properties Trust

What does SNH’s beta value mean?

Senior Housing Properties Trust’s beta of 0.38 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in SNH’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. SNH’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.

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

SNH has a market capitalization of US$3.81B, putting it in the category of established companies, which are found to experience less relative risk compared to small-sized companies. However, SNH operates in the reits industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a low beta for the large-cap nature of SNH but a higher beta for the reits industry. It seems as though there is an inconsistency in risks from SNH’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

How SNH’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 SNH’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, SNH appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of SNH indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts SNH’s current beta value which indicates a below-average volatility.

What this means for you:

You could benefit from lower risk during times of economic decline by holding onto SNH. Take into account your portfolio sensitivity to the market before you invest in the stock, as well as where we are in the current economic cycle. Depending on the composition of your portfolio, SNH may be a valuable stock to hold onto in order to cushion the impact of a downturn. What I have not mentioned in my article here are important company-specific fundamentals such as Senior Housing Properties Trust’s financial health and performance track record. I urge you to complete your research by taking a look at the following:

1. Future Outlook: What are well-informed industry analysts predicting for SNH’s future growth? Take a look at our free research report of analyst consensus for SNH’s outlook.

2. Past Track Record: Has SNH been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of SNH’s historicals for more clarity.

3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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.