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Should You Be Concerned About Health Insurance Innovations, Inc.'s (NASDAQ:HIIQ) Historical Volatility?

Simply Wall St

Anyone researching Health Insurance Innovations, Inc. (NASDAQ:HIIQ) might want to consider the historical volatility of the share price. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the market.

Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that 'Volatility is far from synonymous with risk', beta is still a useful factor to consider. To make good use of it you must first know that the beta of the overall market is one. A stock with a beta greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

View our latest analysis for Health Insurance Innovations

What HIIQ's beta value tells investors

Given that it has a beta of 1.32, we can surmise that the Health Insurance Innovations share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Health Insurance Innovations are likely to rise strongly in times of greed, but sell off in times of fear. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see Health Insurance Innovations's revenue and earnings in the image below.

NasdaqGM:HIIQ Income Statement, September 16th 2019

How does HIIQ's size impact its beta?

With a market capitalisation of US$278m, Health Insurance Innovations is a very small company by global standards. It is quite likely to be unknown to most investors. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.

What this means for you:

Since Health Insurance Innovations has a reasonably high beta, it's worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. In order to fully understand whether HIIQ is a good investment for you, we also need to consider important company-specific fundamentals such as Health Insurance Innovations’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for HIIQ’s future growth? Take a look at our free research report of analyst consensus for HIIQ’s outlook.
  2. Past Track Record: Has HIIQ 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 HIIQ's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how HIIQ measures up against other companies on valuation. You could start with this free list of prospective options.

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.