If you are a shareholder in Tryg A/S’s (CPSE:TRYG), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. The beta measures TRYG’s exposure to the wider market risk, which reflects changes in economic and political factors. Not every stock is exposed to the same level 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 Tryg
What does TRYG’s beta value mean?
Tryg’s beta of 0.19 indicates that the company is less volatile relative to the diversified market portfolio. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. TRYG’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 TRYG’s size and industry cause it to be more volatile?
With a market capitalisation of Ø44.62B, TRYG is considered an established entity, which has generally experienced less relative risk in comparison to smaller sized companies. Conversely, the company operates in the insurance industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect a low beta for the large-cap nature of TRYG but a higher beta for the insurance industry. It seems as though there is an inconsistency in risks from TRYG’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is TRYG’s cost structure indicative of a high 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 examine TRYG’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Since TRYG’s fixed assets are only 1.57% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. 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 is consistent with is current beta value which also indicates low volatility.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto TRYG. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. In order to fully understand whether TRYG is a good investment for you, we also need to consider important company-specific fundamentals such as Tryg’s financial health and performance track record. I urge you to complete your research by taking a look at the following: