How Does National Bank of Greece SA. (ATH:ETE) Affect Your Portfolio Returns?

If you are a shareholder in National Bank of Greece SA.’s (ATSE:ETE), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Broadly speaking, there are two types of risk you should consider when investing in stocks such as ETE. The first type is company-specific risk, which can be diversified away by investing in other companies to reduce exposure to one particular stock. The other type of risk, which cannot be diversified away, is market risk. Every stock in the market is exposed to this risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few.

Not every stock is exposed to the same level of market risk. A widely-used metric to measure a stock's market risk is beta, and the broad market index 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.

What is ETE’s market risk?

National Bank of Greece has a beta of 4.61, which means that the percentage change in its stock value will be higher than the entire market in times of booms and busts. A high level of beta means investors face higher risk associated with potential gains and losses driven by market movements. According to this value of beta, ETE may be a stock for investors with a portfolio mainly made up of low-beta stocks. This is because during times of bullish sentiment, you can reap more of the upside with high-beta stocks compared to muted movements of low-beta holdings.

Could ETE's size and industry cause it to be more volatile?

With a market capitalisation of €2.42B, ETE is considered an established entity, which has generally experienced less relative risk in comparison to smaller sized companies. Conversely, the company operates in the banks 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 ETE but a higher beta for the banks industry. This is an interesting conclusion, since its size suggests ETE should be less volatile than it actually is. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

How ETE's assets could affect its 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 ETE’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 ETE’s fixed assets are only 1.84% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect ETE 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. This outcome contradicts ETE’s current beta value which indicates an above-average volatility.

What this means for you:

You could benefit from higher returns during times of economic growth by holding onto ETE. 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 ETE is a good investment for you, we also need to consider important company-specific fundamentals such as National Bank of Greece’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:

1. Future Outlook: What are well-informed industry analysts predicting for ETE’s future growth? Take a look at our free research report of analyst consensus for ETE’s outlook.
2. Past Track Record: Has ETE 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 ETE'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.