Value at Risk (VaR) is a statistical measure used to quantify the potential loss on a financial asset or portfolio over a specified time period and with a certain level of confidence. There are different methods for calculating Value at Risk, and the choice of method depends on the characteri...
In investing, correlation is most important in relation to a diversified portfolio. Investors who wish to mitigate risk can do so by investing in non-correlated assets. For example, consider an investor who owns airline stock. If the airline industry is found to have a low correlation to the ...
After calculating the sum of all four sources of income, we arrive at a gross income figure of $214,000 for the individual in 2021. Gross Income = $200,000 + $10,000 + $2,000 + $2,000 = $214,000 Strategies and techniques for building better pitchbooks, client decks and other pr...
When considering two different securities, it is also important to take risk into account. For example, comparing aTreasury billto a highlyvolatilestock can be misleading, even if both have the same expected return so that the opportunity cost of either option is 0%. That's because the U.S...
Understanding portfolio variance is crucial for optimizing your investment strategy and managing risk effectively. By calculating portfolio variance, you gain insights into how different assets interact within your portfolio and how these interactions impact overall performance. Armed with this knowledge, you...
(volatility)of the data set vis-à-vis its mean. The volatility serves as a measure of risk, and as such, the Variance helps assess an investor’s portfolio risk. A zero variance signifies that all variables in the data set are identical. On the other hand, a higher variance can ...
By regularly monitoring the CEI, businesses can ensure they are maximizing their collections efficiency, reducing the risk of bad debts, and maintaining healthy financial stability. Formula for Calculating Collection Effectiveness Index Collection effectiveness index is calculated by dividing the beginning AR...
Inflation Risk Calculation Example Suppose we’re tasked with calculating the real rate of return, break-even inflation rate, Fisher Equation, and inflation risk premium given the folllowing set of assumptions: Nominal Interest Rate = 5% Expected Inflation Rate = 2% Actual Inflation Rate = 2.5% ...
Comparing the returns on the two investments, stock B generated a higher ROI for the investor. (Note: We used a simple example for explanation here. If we consider commissions paid for buying or selling securities, then such commissions should be subtracted when calculating Net Profit.) –Busine...
R-squared, also known as the coefficient of determination, is the statistical measurement of the correlation between an investment’s performance and a specific benchmark index. In other words, it shows what degree a stock or portfolio’s performance can