Learn

There are two significant variable in mean-variance analysis, expected return (mean) and volatility (standard deviation). In the investment theory data is run to find out what is expected return and what is volatility for a specific security. As expected return is an average of a security’s returns for a given period, volatility is made of standard deviation of a security’s returns for a given period. Volatility is an annualized form of standard deviation of a security’s returns derived by daily variance of that security’s returns. 

Investment theory is based on two significant percentages; mean of a time series data for a security’s returns and standard deviation of a time series data for a security’s returns. Investors want to make rational choices once they decide to invest. They would like to take least risk as they want to yield possibly most highest return. So, there are thousands of different investment opportunities in the market however which ones would maximize our return for a given risk. Making a rational choice from the investment opportunities cluster, which includes more than 8000 security, is a problem. Riskwarner helps you find it out. When two security’s expected returns are same and their dynamic volatilities are different, the one which has lower volatility would be a rational choice. When you search a specific security by using riskwarner search tool, it automatically gives you 5 securities whose expected returns to that specific security are similar and dynamic volatilities to that are lower. However it does not tell you the best optimized investment alternatives neither provide a portfolio optimizing your risks and potential returns. If your specific security’s expected return is -15% and dynamic volatility is 85%, our algorithm still finds you securities whose expected returns are approximately -15% but dynamic volatilities are quite lower than 85% or about 85% based on most available investment choice in the market at that moment. Unless you upgrade your account, our algorithm works to find you securities with similar expected return and lower dynamic volatility to the one you search in the tool.

The reason why these variables are fairly important in investment field lies on better risk&reward adjustment. Determining the price behavior is the way how we adjust risks, however fundamental analysis only deals with financial tables and valuations. While financial tables better indicates current financial situation of companies, valuation usually assumes future predictions and expectations for asset pricing. These are subject to change in a systematic risk environment caused by interest rate risk, inflation risk and market risk.

Most successful businesses aim low volatility for their share prices as they try to keep their share returns stable and positive. So, If a company’s share price volatility is low while its share return is high or stable, that would be a desirable investment for many professionals and corporate investors. As they keep investing in these preferable securities, their price go up.

Best investment decisions are made by consideration of all analysis for sure. However finding out risk of a security around is scarce. Here we have riskwarner for everyone. It does not only explain risks in numbers but also it shows you five securities with lower risk for a similar reward for free.