Diana Containerships Inc (DCIX): What Does It Mean For Your Portfolio?
For Diana Containerships Inc’s (NASDAQ:DCIX) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. The beta measures DCIX’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 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 Diana Containerships
An interpretation of DCIX’s beta
With a beta of 2.2, Diana Containerships is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. According to this value of beta, DCIX 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.
How does DCIX’s size and industry impact its risk?
A market capitalisation of USD $5.90M puts DCIX in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the marine industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect higher beta for small-cap stocks in a cyclical industry compared to larger stocks in a defensive industry. This is consistent with DCIX’s individual beta value we discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
Can DCIX’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 DCIX’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, DCIX appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. Thus, we can expect DCIX 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. Similarly, DCIX’s beta value conveys the same message.
What this means for you:
Are you a shareholder? You may reap the gains of DCIX’s returns in times of an economic boom. Though the business does have higher fixed cost than what is considered safe, during times of growth, consumer demand may be high enough to not warrant immediate concerns. However, during a downturn, a more defensive stock can cushion the impact of this risk. For next steps, take a look at DCIX’s outlook to see what analysts are expecting for the stock on our free analysis plaform here.
Are you a potential investor? I recommend that you look into DCIX’s fundamental factors such as its current valuation and financial health as well. 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. DCIX may be a great investment during times of economic growth. You can examine these factors in our free fundamental research report for DCIX 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.
