If you are looking to invest in Arco Resources Corp’s (TSXV:ARR.H), 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. The beta measures ARR.H’s exposure to the wider market risk, which reflects changes in economic and political factors. 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. 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.

Check out our latest analysis for Arco Resources

What does ARR.H’s beta value mean?

Arco Resources’s beta of 0.33 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. ARR.H’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 ARR.H’s size and industry cause it to be more volatile?

ARR.H, with its market capitalisation of CAD CA$516.30K, is a small-cap stock, which generally have higher beta than similar companies of larger size. Moreover, ARR.H’s industry, metals and mining, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. Therefore, investors may expect high beta associated with small companies, as well as those operating in the metals and mining industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by ARR.H’s size and industry relative to its actual beta value.

Can ARR.H’s asset-composition point to a higher 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 ARR.H’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given that fixed assets make up an insignificant portion of total assets, ARR.H doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. 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. Similarly, ARR.H’s beta value conveys the same message.

What this means for you:

You could benefit from lower risk during times of economic decline by holding onto ARR.H. 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, ARR.H may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether ARR.H is a good investment for you, we also need to consider important company-specific fundamentals such as Arco Resources’s financial health and performance track record. I urge you to complete your research by taking a look at the following:

• 1. Financial Health: Is ARR.H’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

• 2. Past Track Record: Has ARR.H 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 ARR.H’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.