If you are a shareholder in Industria e Innovazione Sp.A.’s (BIT:IIN), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of 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 broad market index 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.

View our latest analysis for Industria e Innovazione

An interpretation of IIN’s beta

With a five-year beta of 0.5, Industria e Innovazione appears to be a less volatile company compared to the rest of the market. This means that the change in IIN’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. IIN’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.

Does IIN’s size and industry impact the expected beta?

With a market cap of €51.49M, IIN falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, IIN also operates in the real estate industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the real estate industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both IIN’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

Can IIN’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 IIN’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets is virtually non-existent in IIN’s operations, it has low dependency on fixed costs to generate revenue. Thus, we can expect IIN 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. Similarly, IIN’s beta value conveys the same message.