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Post by yogibearbull on Mar 8, 2024 16:06:15 GMT
M* SD is not on prices, but on % monthly returns. This is a common practice in finance & MPT. So, the data series is that of monthly total returns, and the SD is also that of monthly returns around the mean monthly return. Then, the SD is annualized by multiplying by sqrt(12) to get the annualized SD. So, the units of SD naturally are % whether indicated or not. Stock Rover (SR) provides SD as 0.XX which is SD/100; it initially confused me because the SR numbers weren't in the ball park with those at M* or PV. Then I found that SR used daily returns, not monthly returns, and that is why SR SD values are generally higher than those at M*, PV, etc. Sharpe Ratio is Excess Mean/SD, but close enough would be Mean/SD. Excess Mean is Mean minus safe yield (typically, 3-mo T-Bills) What chang , is saying/wants, then, is the inverse Sharpe Ratio, or SD/Mean. If one plays around with it a bit, one will find that it isn't of much practical use. All about M* MPT can be found in this document, pdfhost.io/v/IADc7lkOZ_MStar_MPT_1209644_030824BTW, Bollinger Bands are calculated with prices and are +/- 2*SD bands around prices; the timeframe is also short, only 20 trading days, but the parameters can be adjusted in StockCharts. I often look at Bollinger Band Width ( BBW) that is basically 4*SD on prices (see Bottom panel). stockcharts.com/h-sc/ui?s=%24SPX&p=D&yr=3&mn=0&dy=0&id=p05518374476I think there is lot of useful digression in this thread that may be moved to a new thread, because it would be difficult to find in future under the title "Many funds seem overbought".
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Post by chang on Mar 8, 2024 16:19:35 GMT
Thanks Yogi, I will move the posts about risk metrics to a new thread.
Just for the record, I don’t use or pay attention to SD. If anything, I’m probably in R48’s camp in gravitating toward higher volatility investments, which tend to deliver better LT returns.
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Post by liftlock on Mar 8, 2024 16:50:45 GMT
So, we're not sure why FD crossed this discussion over to SD. Volatility is measured by IV, or Implied Volatility as discussed in our previous post. (EDIT: See yogibearbull post below that provides excellent color to the history/current state!) seekingalpha.com/article/4501215-implied-volatilityExcerpt:What Is Implied Volatility?Implied volatility is a statistical measure of the expected amount of price movements in a given stock or other financial asset over a set future time frame. Traders use IV for several reasons which can include:As a measurement of risk for a given trading instrument.To calibrate models such as value at risk (VAR) and to establish position sizing and limits.To calculate fair prices for options contracts using models such as the Black–Scholes method.To tell whether an asset is currently at a high or low level of volatility compared to its history.Determining if the market as a whole is currently at a high or low level of sentiment.Which of course calls to mind the VIX, or overall market Volatility Index, that currently sits at 14.42. The CBOE Volatility Index, or VIX, is a real-time market index representing the market’s expectations for volatility over the coming 30 days. Investors use the VIX to measure the level of risk, fear, or stress in the market when making investment decisions.From what FD is posting, we're getting the impression that he may not even know that the IV measurement (for underlying stocks, ETFs) exists and instead is concentrating on their respective SDs, a measurement that he is aware of and attaches to volatility. (Being a self-described prolific trader, that seems more than a little odd to us.) Here are IVs for the SPY, Mag 7 and SMCI. Yes, NVDA's IV, like TSLA's, is much higher than the S&P, but they pale in comparison to SMCI. So one can accurately say that NVDA's IV (or volatility) is high compared to SPY, but SMCI's would be the one somebody might call "huge," if they were inclined to use such a word. My husband would conversely call SMCI's IV "extremely high," while NVDA's and TSLA's would be called "high." IVSPY 12.1 MSFT 21.1 AAPL 22.1 AMZN 25.0 GOOGL 26.0 META 28.9 TSLA 47.9 NVDA 49.8 SMCI 114.3 NOTE: Our previous post provides links to NVDA's and SMCI's IV. Karen, I have never studied or used IV, and I am not sure how to interpret the values shown. Are the IV values you are quoting being expressed in relative percentage terms? Should I divide the IV of 114.3 for SMCI by the IV of 12.1 for SPY to conclude that SMCI is about 9.5 times more volatile than SPY? How does one determine the "set future time frame" of these values?
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Post by Karen on Mar 8, 2024 20:02:25 GMT
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Post by liftlock on Mar 8, 2024 23:21:44 GMT
Thank you very much for the links and your assistance. It was inconsiderate of me to ask you for more information as I image you may have your hands full with your husbands health condition. My apologies and very best wishes for your husband's return to good health.
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Post by FD1000 on Mar 9, 2024 5:59:32 GMT
I'm in a 3+ weeks vacation in NZ and limited access and time to the Internet. Karen, according to your numbers NVDA is 4 times more volatile than SPY and double of most of of the other big tech...and it's not huge just because you found another ticker with higher volatility? How many stocks with a market cap of over a trillion are more volatile than NVDA? you got me 🤗
I have been using for many years SD, Sharp, max draw, sortino and charts that include the funds I compared. The above are easily found and helped me tremendously to find great risk-adjusted funds. I gave several examples. If these are not correct please comment. Anyone who thinks the above are useless then disregard it.
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Post by FD1000 on Mar 9, 2024 9:29:43 GMT
I never said that only SD is a good measure of risk, I use it to find funds and combined with other things (performance, sharpe, sortino, charts, others) across several categories I mentioned. All helped me find better risk-adjusted performance funds and portfolio. Only real examples matter to me. I never owned a fund that had a huge performance and high SD for months and years. If I think that PIMIX would made more than SPY with lower SD (2010-2013) I would go for it. I don't care that NVDA would make 5 times more, because I would invest 50% in PIMIX. I only care about total portfolio risk-adjusted performance, not one holding.
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Post by chang on Mar 9, 2024 9:40:08 GMT
I don't understand obsession with "risk-adjusted" performance if one's time-frame is long. For retirees - yes. But I would not let volatility metrics (SD, Sharpe, Sortino, Martino, etc. blah) drive a portfolio for 10-20 years. JMVHO.
A money market fund with NAV = $1 necessarily has an SD = 0, and hence a Sharpe Ratio = ∞. But any investor who spent the last 20 years in cash was ... well, not an investor.
It's always interesting to me to note 3★ funds with superior 10-15 years performance over 5★ funds in the same category. People forget that Morningstar ★ ratings are based on risk-adjusted performance, not actual performance. The 3★ fund simply has more volatility, but over a LT period made more (perhaps much more) money. Worth keeping in mind when looking for the right fund to suit a situation.
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Post by FD1000 on Mar 9, 2024 10:09:33 GMT
You continue to disregard performance + others. It's never one thing, it's a combination of all. If it walks like a duck it is one. BTW, I'm only discussing funds not single stocks. From observations over decades, a fund with high volatility can do well for several years but eventually the ones with great sharpe have a better chance to do better in the future. Higher SD doesn't not guarantee better performance over LT. I gave specific examples. More, SPY vs EEM since 2010. I have mentioned US LC over 10 years now. Several weeks ago I mentioned VGIT vs RSIIX for 2024. All you got to do is look at YTD chart. schrts.co/MgxyxdXeSince I'm interested in a real way to have a better risk-adjusted performance than just definitions.
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Post by chang on Mar 9, 2024 10:29:10 GMT
I’m not disregarding anything. Frankly I am not sure what specific point you are making.
My comments about SD apply to the monthly price of stocks or funds, or to the accumulation of snowfall, SAT scores, the number of children in a family, or any “random variable”. My comments about risk apply to any investment that one expects to appreciate in value.
SPY vs EEM means nothing - just two ETFs.
The Andromeda and Milky Way galaxies are approaching one another and will eventually collide. That doesn’t alter the fact that all the other galaxies in the universe are receding from us.
I can’t think of anything else to say without repeating myself.
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Post by Norbert on Mar 9, 2024 15:42:59 GMT
You continue to disregard performance + others. It's never one thing, it's a combination of all. If it walks like a duck it is one. BTW, I'm only discussing funds not single stocks. From observations over decades, a fund with high volatility can do well for several years but eventually the ones with great sharpe have a better chance to do better in the future. Higher SD doesn't not guarantee better performance over LT. I gave specific examples. More, SPY vs EEM since 2010. I have mentioned US LC over 10 years now. Several weeks ago I mentioned VGIT vs RSIIX for 2024. All you got to do is look at YTD chart. schrts.co/MgxyxdXeSince I'm interested in a real way to have a better risk-adjusted performance than just definitions this was my last post. Low sharpe ratios are predictive of better future returns? That's valuable information.
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Post by yogibearbull on Mar 9, 2024 16:07:12 GMT
Even m-mkt funds have SDs and Sharpe Ratios. Look closely at the definitions used in finance. From M* data over 3 yrs (5 & 10 yr data are also available): SD Sharpe Ratio SPAXX 0.63 -4.57 VMFXX 0.67 -3.93 chang , thanks for moving all these posts in a new thread. These can be found and linked easily. Different people may use the same data in different ways, or not at all.
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Post by FD1000 on Mar 9, 2024 18:36:13 GMT
You continue to disregard performance + others. It's never one thing, it's a combination of all. If it walks like a duck it is one. BTW, I'm only discussing funds not single stocks. From observations over decades, a fund with high volatility can do well for several years but eventually the ones with great sharpe have a better chance to do better in the future. Higher SD doesn't not guarantee better performance over LT. I gave specific examples. More, SPY vs EEM since 2010. I have mentioned US LC over 10 years now. Several weeks ago I mentioned VGIT vs RSIIX for 2024. All you got to do is look at YTD chart. schrts.co/MgxyxdXeSince I'm interested in a real way to have a better risk-adjusted performance than just definitions this was my last post. Low sharpe ratios are predictive of better future returns? That's valuable information. No, I look for high Sharpe and then for high performance, but also low SD and smooth chart and then I want good performance in the last 6-12 months not to get stuck LT in lagging categories/funds. It doesn't mean it guarantees a success, just a better chance. Of course, you can own EM vs SPY for 15 years while EM had lower Sharpe, higher SD, and much worse performance. Remember, in 2009-10 Arnott, GMO and other argued that Value mattered, that the US stock market will shrink and EM stock will do great because this is where the consumption and growth would be. The stock market proved them wrong.
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Post by habsui on Mar 9, 2024 21:07:13 GMT
Low sharpe ratios are predictive of better future returns? That's valuable information. No, I look for high Sharpe and then for high performance, but also low SD and smooth chart and then I want good performance in the last 6-12 months not to get stuck LT in lagging categories/funds. It doesn't mean it guarantees a success, just a better chance. Of course, you can own EM vs SPY for 15 years while EM had lower Sharpe, higher SD, and much worse performance. Remember, in 2009-10 Arnott, GMO and other argued that Value mattered, that the US stock market will shrink and EM stock will do great because this is where the consumption and growth would be. The stock market proved them wrong. No, the stock market didn't prove them wrong. Their assumptions/expectations were wrong.
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Post by Norbert on Mar 10, 2024 9:59:33 GMT
Low sharpe ratios are predictive of better future returns? That's valuable information. No, I look for high Sharpe and then for high performance, but also low SD and smooth chart and then I want good performance in the last 6-12 months not to get stuck LT in lagging categories/funds. It doesn't mean it guarantees a success, just a better chance. Of course, you can own EM vs SPY for 15 years while EM had lower Sharpe, higher SD, and much worse performance. Remember, in 2009-10 Arnott, GMO and other argued that Value mattered, that the US stock market will shrink and EM stock will do great because this is where the consumption and growth would be. The stock market proved them wrong. Yes, I meant "high sharpe ratio", not low. Apologies. Definitely get the part about being in high-performing categories or funds, not in lagging ones. The recent discussion about Utilities on this board suggests that other investors have a similar focus. What I don't grasp is the predictive value of Sharpe or SD. N.
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Post by chang on Mar 10, 2024 12:11:33 GMT
SD cannot, theoretically, tell you anything about direction. It only measures dispersion or spread about a mean. It is directionless (unlike, for example, moving averages).
If SD does indeed have a correlation with performance, then there must be some other causative factors - which would be very interesting to understand and measure. But I have not seen any such analysis.
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Post by Karen on Mar 10, 2024 12:33:42 GMT
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Post by archer on Mar 10, 2024 15:36:46 GMT
I think for most investors, well, at least me, SD in relation to mean is overly complicating our tool bags. If one is risk averse, choosing low SD assets are likely to not cause more loss than tolerable. They can also be easier for longer term trading.
SMCI has SD of 59.34 as of end of Feb. I would love to have bought it now that I can look back, but for my taste it is too wild a ride. For me SD is a measurement of how far it is likely to fall, and in comparison to the overall market.
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Post by chang on Mar 10, 2024 17:20:43 GMT
Even m-mkt funds have SDs and Sharpe Ratios. Look closely at the definitions used in finance. From M* data over 3 yrs (5 & 10 yr data are also available): SD Sharpe Ratio SPAXX 0.63 -4.57 VMFXX 0.67 -3.93 yogibearbull That should not be possible using the strict definition of Sharpe Ratio, since the SD of a $1-NAV MM is 0. I guess there is some finagling going on.One should be careful with Sharpe. If the Sharpe ratio is negative (asset underperforming the benchmark) then a higher standard deviation will actually improve the Sharpe Ratio. Of course, this makes no sense, so in this situation the S.R. is of little value. I find that Sharpe Ratio, like SD, simply doesn’t provide much if any value in assessing and selecting funds. That’s just me; others may see it differently (but they’d have to explain and justify it). I’m not opposed to the idea of measuring "risk-adjusted return", but I think it requires more thought than the matter is usually given. In the case of Sharpe ratio, "risk" is just = SD, and I don’t think that’s particularly effective.
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Post by FD1000 on Mar 10, 2024 18:33:01 GMT
For me the Sharpe, SD, Sortino, smooth charts, performance are tools to find a pool of good risk-adjusted funds. The next step is to select just several funds from this pool based on momo. This is where I don't have lagging funds for years + concentration play a major part
This is why I invested in SGIIX, FAIRX, OAKBX during 2000-2010 while SPY,QQQ lost money and since 2010 mostly in US LC and bond funds like PIMIX until 2018 and since then other bond funds.
Later came timing based on the big picture + simple T/A. Many don't believe it's doable doing this, I do. BTW, was it a secret that PRWCX had been one of the best funds for decades or PIMIX amazing run for about 8 years 2010-8 beating many allocation funds or the last 15 years dominated by US LC?
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Post by yogibearbull on Mar 10, 2024 18:36:45 GMT
chang, well, let me repeat what I said before. This M* SD is not on prices or NAV, but on monthly returns. And Sharpe Ratio is negative because it uses excess-mean. For m-mkt funds, that has been negative wrt to T-Bills (well-known lag of m-mkt funds relative to T-Bills). So, the data make perfect sense to me. But I agree that SD or Sharpe Ratio for m-mkt funds don't offer much insights. But I do find them very useful for stock & hybrid funds. It doesn't matter to me if some find it useless.
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Post by chang on Mar 10, 2024 18:55:35 GMT
yogibearbull - my mistake, I don’t know what I was thinking. Of course the data is RETURN, not NAV. My comment about money markets was rubbish. (The rest is OK.) (I edited my two previous posts and struck-though xxx the nonsense part.)
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Post by chang on Mar 10, 2024 19:18:45 GMT
For me the Sharpe, SD, Sortino, smooth charts, performance are tools to find a pool of good risk-adjusted funds. The next step is to select just several funds from this pool based on momo. This is where I don't have lagging funds for years + concentration play a major part This is why I invested in SGIIX, FAIRX, OAKBX during 2000-2010 while SPY,QQQ lost money and since 2010 mostly in US LC and bond funds like PIMIX until 2018 and since then other bond funds. Later came timing based on the big picture + simple T/A. Many don't believe it's doable doing this, I do. BTW, was it a secret that PRWCX had been one of the best funds for decades or PIMIX amazing run for about 8 years 2010-8 beating many allocation funds or the last 15 years dominated by US LC? FD, I am sorry but I've been involved in offline discussions with five people about your engagement here, and the upshot is that we risk losing 1-2 valuable posters. On a personal note, I too am tired of reading your autobiography in almost every post. You said yesterday that you are in NZ on holiday, so I cannot fathom why you are posting so much. Again I am sorry but we've been through on- and offline constructive criticism on numerous occasions, and the issues continue. In fairness, it takes two to tango, and it would be better if people used the block/ignore feature more often (although a forum where people are blocking one another doesn't seem very successful to me). But the bottom line is that I'm trying to manage a community based on discussion, debate, questions, feedback, sharing, engagement, and communication, and your prolific style is driving down participation and driving people away (two previous cases confirmed, and potential future cases). As much as I loathe censorship and moderation, I need to go with the majority. Please take a break and enjoy your holiday in gorgeous New Zealand.
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Post by habsui on Mar 10, 2024 20:20:48 GMT
For me the Sharpe, SD, Sortino, smooth charts, performance are tools to find a pool of good risk-adjusted funds. The next step is to select just several funds from this pool based on momo. This is where I don't have lagging funds for years + concentration play a major part This is why I invested in SGIIX, FAIRX, OAKBX during 2000-2010 while SPY,QQQ lost money and since 2010 mostly in US LC and bond funds like PIMIX until 2018 and since then other bond funds. Later came timing based on the big picture + simple T/A. Many don't believe it's doable doing this, I do. BTW, was it a secret that PRWCX had been one of the best funds for decades or PIMIX amazing run for about 8 years 2010-8 beating many allocation funds or the last 15 years dominated by US LC? Looking back, that is correct.
But there is no way you would have sold PIMIX exactly in 2018, knowing based on backwards data that it would not do as well going forward.
However, I could tell you the exact NVDA price in 14 months..
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Post by Mustang on Mar 12, 2024 18:04:42 GMT
This is a bit off topic but shen I read the article in the first link I could almost hear the voice of HAL-9000 (Space Odyssey) or the computer in War Games (Do you want to play a game?). When an introduction describes the purpose of the introduction instead of the purpose of the paper it makes me wonder if it was AI generated.
I'm still uncertain of the usefulness of the standard deviation. As HAL-9000 wrote. Its used to measure volatility, the degree which individual data point deviate from the mean. It uses the square of the deviation which makes all numbers positive so it does not take into account the direction of price (rate) movements. And it assumes a normal distribution which is unlikely to be the case with all data sets.
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