Before You Buy Ideanomics, Inc. (NASDAQ:IDEX), Consider Its Volatility




  • In Business
  • 2019-05-23 14:34:14Z
  • By Simply Wall St.
 

Anyone researching Ideanomics, Inc. (NASDAQ:IDEX) might want to consider the historical volatility of the share price. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.

Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Beta can be a useful tool to understand how much a stock is influenced by market risk (volatility). However, Warren Buffett said 'volatility is far from synonymous with risk' in his 2014 letter to investors. So, while useful, beta is not the only metric to consider. To use beta as an investor, you must first understand that the overall market has a beta of one. A stock with a beta below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

Check out our latest analysis for Ideanomics

What we can learn from IDEX's beta value

Zooming in on Ideanomics, we see it has a five year beta of 1.86. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. Based on this history, investors should be aware that Ideanomics are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it's also important to consider whether Ideanomics is growing earnings and revenue. You can take a look for yourself, below.

Could IDEX's size cause it to be more volatile?

With a market capitalisation of US$165m, Ideanomics is a very small company by global standards. It is quite likely to be unknown to most investors. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.

What this means for you:

Since Ideanomics tends to moves up when the market is going up, and down when it's going down, potential investors may wish to reflect on the overall market, when considering the stock. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Ideanomics's financial health and performance track record. I highly recommend you dive deeper by considering the following:

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

COMMENTS

More Related News

Investors Who Bought Viking Line ABP (HEL:VIK1V) Shares Three Years Ago Are Now Down 21%
Investors Who Bought Viking Line ABP (HEL:VIK1V) Shares Three Years Ago Are Now Down 21%

As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain...

Imagine Owning Alfen (AMS:ALFEN) And Wondering If The 25% Share Price Slide Is Justified
Imagine Owning Alfen (AMS:ALFEN) And Wondering If The 25% Share Price Slide Is Justified

Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that...

If You Had Bought Global Dominion Access (BME:DOM) Shares Three Years Ago You
If You Had Bought Global Dominion Access (BME:DOM) Shares Three Years Ago You'd Have Made 72%

One simple way to benefit from the stock market is to buy an index fund. But if you choose individual stocks with...

Does The Polytec Holding AG (VIE:PYT) Share Price Fall With The Market?
Does The Polytec Holding AG (VIE:PYT) Share Price Fall With The Market?

Anyone researching Polytec Holding AG (VIE:PYT) might want to consider the historical volatility of the share price...

The Office Properties Income Trust (NASDAQ:OPI) Share Price Is Down 77% So Some Shareholders Are Rather Upset
The Office Properties Income Trust (NASDAQ:OPI) Share Price Is Down 77% So Some Shareholders Are Rather Upset

Generally speaking long term investing is the way to go. But no-one is immune from buying too high. For example, after...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business

facebook
Hit "Like"
Don't miss any important news
Thanks, you don't need to show me this anymore.