How Should You Think About Public Joint Stock Company United Aircraft Corporation's (MCX:UNAC) Risks?

For Public Joint Stock Company United Aircraft Corporation’s (MISX:UNAC) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. Broadly speaking, there are two types of risk you should consider when investing in stocks such as UNAC. The first risk to think about is company-specific, which can be diversified away by investing in other companies in order to lower your exposure to one particular stock. The second type is market risk, one that you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks in the market.

Not every stock is exposed to the same level of market risk. The most widely used metric to quantify a stock's market risk is beta, 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.

What does UNAC's beta value mean?

United Aircraft's beta of 0.33 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in UNAC'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. UNAC'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.

Does UNAC's size and industry impact the expected beta?

UNAC has a market capitalization of RUРУБ272.78B, putting it in the category of established companies, which are found to experience less relative risk compared to small-sized companies. However, UNAC operates in the aerospace & defense industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors can expect a low beta associated with the size of UNAC, but a higher beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from UNAC’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

Can UNAC'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 examine UNAC’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. UNAC's fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. Thus, we can expect UNAC to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. However, this is the opposite to what UNAC’s actual beta value suggests, which is lower stock volatility relative to the market.

What this means for you:

You could benefit from lower risk during times of economic decline by holding onto UNAC. 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, UNAC may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether UNAC is a good investment for you, we also need to consider important company-specific fundamentals such as United Aircraft’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 UNAC’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 UNAC 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 UNAC'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.

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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.