How Zogenix, Inc. (NASDAQ:ZGNX) Can Impact Your Portfolio Volatility

Anyone researching Zogenix, Inc. (NASDAQ:ZGNX) 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 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

Check out our latest analysis for Zogenix

What does ZGNX’s beta value mean to investors?

Zooming in on Zogenix, we see it has a five year beta of 1.98. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If the past is any guide, we would expect that Zogenix shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it’s also important to consider whether Zogenix is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGM:ZGNX Income Statement, January 16th 2020
NasdaqGM:ZGNX Income Statement, January 16th 2020

How does ZGNX’s size impact its beta?

With a market capitalisation of US$2.4b, Zogenix is a pretty big company, even by global standards. It is quite likely well known to very many investors. It takes deep pocketed investors to influence the share price of a large company, so it’s a little unusual to see companies this size with high beta values. It may be that that this company is more heavily impacted by broader economic factors than most.

What this means for you:

Since Zogenix 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 Zogenix’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

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

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.

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. Thank you for reading.