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Upside Beta
In Investment#In finance, investing, upside beta is the element of traditional Beta (finance), beta that investors do not typically associate with the true meaning of Financial risk, risk. It is defined to be the scaled amount by which an asset tends to move compared to a benchmark, calculated only on days when the benchmark’s return is positive. Formula Upside beta measures this upside risk. Defining r_i and r_m as the excess returns to security i and market m, u_m as the average market excess return, and Cov and Var as the Covariance operator, covariance and variance operators, the CAPM can be modified to incorporate upside (or Downside beta, downside) beta as follows. :\beta^+=\frac, with downside beta \beta^- defined with the inequality directions reversed. Therefore, \beta^- and \beta^+ can be estimated with a regression of excess return of security i on excess return of the market, conditional on excess market return being below the mean (downside beta) and above the mean ( ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Investment
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is to generate a return from the invested asset. The return may consist of a gain (profit) or a loss realized from the sale of a property or an investment, unrealized capital appreciation (or depreciation), or investment income such as dividends, interest, or rental income, or a combination of capital gain and income. The return may also include currency gains or losses due to changes in the foreign currency exchange rates. Investors generally expect higher returns from riskier investments. When a low-risk investment is made, the return is also generally low. Similarly, high risk comes with a chance of high losses. Investors, particularly novices, are often advised to diversify their portfolio. Diversification has the statistical effec ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Beta (finance)
In finance, the beta (β or market beta or beta coefficient) is a measure of how an individual asset moves (on average) when the overall stock market increases or decreases. Thus, beta is a useful measure of the contribution of an individual asset to the risk of the market portfolio when it is added in small quantity. Thus, beta is referred to as an asset's non-diversifiable risk, its systematic risk, market risk, or hedge ratio. Beta is ''not'' a measure of idiosyncratic risk. Interpretation of values By definition, the value-weighted average of all market-betas of all investable assets with respect to the value-weighted market index is 1. If an asset has a beta above (below) 1, it indicates that its return moves more (less) than 1-to-1 with the return of the market-portfolio, on average. In practice, few stocks have negative betas (tending to go up when the market goes down). Most stocks have betas between 0 and 3. Treasury bills (like most fixed income instruments) a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Financial Risk
Financial risk is any of various types of risk associated with financing, including financial transactions that include company loans in risk of default. Often it is understood to include only downside risk, meaning the potential for financial loss and uncertainty about its extent. A science has evolved around managing market and financial risk under the general title of modern portfolio theory initiated by Dr. Harry Markowitz in 1952 with his article, "Portfolio Selection". In modern portfolio theory, the variance (or standard deviation) of a portfolio is used as the definition of risk. Types According to Bender and Panz (2021), financial risks can be sorted into five different categories. In their study, they apply an algorithm-based framework and identify 193 single financial risk types, which are sorted into the five categories market risk, liquidity risk, credit risk, business risk and investment risk. Market risk The four standard market risk factors are equity ri ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Upside Risk
In investing, upside risk is the uncertain possibility of gain. It is measured by upside beta. An alternative measure of upside risk is the upper semi-deviation. Upside risk is calculated using data only from days when the benchmark (for example S&P 500 Index) has gone up. Upside risk focuses on uncertain positive returns rather than negative returns. For this reason, upside risk, while a measure of unpredictability of the extent of gains, is not a “risk” in the sense of a possibility of adverse outcomes. Upside risk vs. Capital Asset Pricing Model Looking at upside risk and downside risk separately provides much more useful information to investors than does only looking at the single Capital Asset Pricing Model (CAPM) beta. The comparison of upside to downside risk is necessary because “modern portfolio theory measures risk in terms of standard deviation of asset returns, which treats both positive and negative deviations from expected returns as risk.” In other words, reg ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Covariance Operator
In probability theory, for a probability measure P on a Hilbert space ''H'' with inner product \langle \cdot,\cdot\rangle , the covariance of P is the bilinear form Cov: ''H'' × ''H'' → R given by :\mathrm(x, y) = \int_ \langle x, z \rangle \langle y, z \rangle \, \mathrm \mathbf (z) for all ''x'' and ''y'' in ''H''. The covariance operator ''C'' is then defined by :\mathrm(x, y) = \langle Cx, y \rangle (from the Riesz representation theorem, such operator exists if Cov is bounded). Since Cov is symmetric in its arguments, the covariance operator is self-adjoint. When P is a centred Gaussian measure, ''C'' is also a nuclear operator. In particular, it is a compact operator of trace class, that is, it has finite trace. Even more generally, for a probability measure P on a Banach space ''B'', the covariance of P is the bilinear form on the algebraic dual ''B''#, defined by :\mathrm(x, y) = \int_ \langle x, z \rangle \langle y, z \rangle \, ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Variance
In probability theory and statistics, variance is the expectation of the squared deviation of a random variable from its population mean or sample mean. Variance is a measure of dispersion, meaning it is a measure of how far a set of numbers is spread out from their average value. Variance has a central role in statistics, where some ideas that use it include descriptive statistics, statistical inference, hypothesis testing, goodness of fit, and Monte Carlo sampling. Variance is an important tool in the sciences, where statistical analysis of data is common. The variance is the square of the standard deviation, the second central moment of a distribution, and the covariance of the random variable with itself, and it is often represented by \sigma^2, s^2, \operatorname(X), V(X), or \mathbb(X). An advantage of variance as a measure of dispersion is that it is more amenable to algebraic manipulation than other measures of dispersion such as the expected absolute deviation; for e ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Downside Beta
In investing, downside beta is the beta that measures a stock's association with the overall stock market (risk) only on days when the market’s return is negative. Downside beta was first proposed by Roy 1952 and then popularized in an investment book bMarkowitz (1959) Formula It is common to measure r_i and r_m as the excess returns to security i and the market m, u_m as the average market excess return, and Cov and Var as the covariance and variance operators, Downside beta is :\beta^-=\frac, while upside beta is given by this expression with the direction of the inequalities reversed. Therefore, \beta^- can be estimated with a regression of the excess return of security i on the excess return of the market, conditional on (excess) market return being negative. Downside beta vs. beta Downside beta was once hypothesized to have greater explanatory power than standard beta in bearish markets. As such, it would have been a better measure of risk than ordinary beta. Use in Equi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Dual-beta
In investing, dual-beta is the idea that the single regular market beta can be usefully replaced with two finer-grained measures, a downside beta and an upside beta. Dual-beta vs Beta Models of Average Returns The Capital Asset Pricing Model posits that individual stock returns move with the overall stock market symmetrically, i.e., that their upside and downside betas are identical. The dual-beta model attempts to differentiate downside risk (risk of loss) from upside risk (gain), both measured in terms of beta with respect to the market and not individual idiosyncratic risk. Mathematically, neither the two betas nor their average needs to be similar to the overall single beta. However, under normal circumstances, the two betas often average to the single beta. In practice, it is difficult to estimate the future downside market-beta. Indeed, the historical single beta is a better predictor of the future downside beta than the historical downside beta. See also *Cost of capita ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Cost Of Capital
In economics and accounting, the cost of capital is the cost of a company's funds (both debt and equity), or from an investor's point of view is "the required rate of return on a portfolio company's existing securities". It is used to evaluate new projects of a company. It is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet. Basic concept For an investment to be worthwhile, the expected return on capital has to be higher than the cost of capital. Given a number of competing investment opportunities, investors are expected to put their capital to work in order to maximize the return. In other words, the cost of capital is the rate of return that capital could be expected to earn in the best alternative investment of equivalent risk; this is the opportunity cost of capital. If a project is of similar risk to a company's average business activities it is reasonable to use the company's average cost ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Downside Risk
Downside risk is the financial risk associated with losses. That is, it is the risk of the actual return being below the expected return, or the uncertainty about the magnitude of that difference. Risk measures typically quantify the downside risk, whereas the standard deviation (an example of a deviation risk measure) measures both the upside and downside risk. Specifically, downside risk can be measured either with downside beta or by measuring lower semi-deviation. The statistic ''below-target semi-deviation'' or simply ''target semi-deviation'' (TSV) has become the industry standard. History Downside risk was first modeled by Roy (1952), who assumed that an investor's goal was to minimize his/her risk. This mean-semivariance, or downside risk, model is also known as “safety-first” technique, and only looks at the lower standard deviations of expected returns which are the potential losses. This is about the same time Harry Markowitz was developing mean-variance theory. ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Macro Risk
Macro risk is financial risk that is associated with macroeconomics, macroeconomic or political factors. There are at least three different ways this phrase is applied. It can refer to economic or financial risk found in capital stock, stocks and funds, to political risk found in different countries, and to the impact of economic or financial variables on political risk. Macro risk can also refer to types of economic indicator, economic factors which influence the volatility over time of investments, assets, portfolios, and the Intrinsic value (finance), intrinsic value of companies. Macro risk associated with stocks, funds, and portfolios is usually of concern to financial planners, securities traders, and investors with longer time horizons. Some of the macroeconomic variables that generate macro risk include unemployment, unemployment rates, price indexes, monetary policy variables, interest rates, exchange rates, housing starts, agricultural exports, and even prices of raw m ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
