Assets Archives - Fintelligents

Downside Risk

Downside Risk

Risk is the uncertainty of losing money invested in a security. To measure the risk or volatility of security we use Standard deviation. Standard deviation measures risk based on returns of security that are positive as well as negative. Therefore Standard deviation measures upside risk as well as downside risk. As there is a risk and return trade-off, we say an investor should be compensated in terms of returns for the risk that he takes. But why would an investor be paid for the upside deviation, an investor should be worried about the downside deviation(risk)? (more…)

Hedge Ratio

Hedge Ratio

The ratio of exposure to a hedging instrument to the value of the hedged asset is called a hedge ratio. It compares the value of a position protected through the use of a hedge with the size of the entire position itself. It is the comparative value of the open position hedges with the position’s aggregate size itself. A ratio of 1 or 100 indicates that the position is fully hedge and a ratio of 0 indicates that it is not hedged at all. (more…)

Commodity-Linked Securities

Commodity-Linked Securities

Investment instruments or securities that are linked to one or more commodity prices are known as commodity-linked securities. These commodity-linked securities provide income to the owner, generally in the form of pay-outs. Like, stocks and bonds, commodities are a class of assets but they are physical products that have uniform quality and are produced in large quantities, for example, cotton, gold, oil, gas, etc. (more…)

Bond Tranches

Bond Tranches

Tranche is a French word meaning slice or portion. They are found in mortgage-backed securities (MBS) or asset-backed securities (ABS). Tranches are segments created from a pool of securities—usually debt instruments such as bonds or mortgages—that are divided up by risk, time to maturity, or other characteristics in order to be marketable to different investors. (more…)

Efficient Frontier

Efficient Frontier

Efficient frontier or Portfolio frontier, a part of modern portfolio theory comprises efficient parts of the risk-return spectrum. It occupies investment portfolios that offer the highest expected return for a specific risk level. It is a set of optimal portfolios that are expected to give higher returns for a minimum level of return. (more…)

Standard Error vs. Standard Deviation

Standard Error vs. Standard Deviation

Standard Error & Standard Deviation are two important concepts of statistics, which are widely used in the field of research. The Standard Error is a mathematical tool used in statistics to measure variability. It measures how precisely a sampling distribution represents a population. It is the approximate standard deviation of a statical sample population. A sample mean deviates from the actual mean of a population this deviation is the standard error of the mean. It can be applied in statistics, economics and is especially useful in the field of econometrics where researchers use it in performing regression analyses and hypothesis testing. This article highlights the concept of Standard Error vs. Standard Deviation. (more…)

Cash and Carry Arbitrage

Cash and Carry Arbitrage

Arbitrage is a practice of taking benefit of price differences between two markets. A market-neutral strategy that combines purchasing of a long position in an asset such as stock or commodity and the sale of a position in the futures market on the same underlying asset is known as cash and carry arbitrage. In Cash and carry arbitrage, a trader takes the benefit of price differences between an asset and its derivative in different markets. (more…)

European Options

European Options

When an investor has the right, but not the obligation, to buy or sell a stock at an agreed-upon price and date, it is known as a stock option. There are two types of options: the put option which is a bet that a stock will fall, or the call option which is a bet that the price of a stock will rise. (more…)

Probability of Default

Probability of Default

The probability when a borrower or debtor defaults on loan repayments, is termed as the Probability of Default (PD). In financial markets, the asset’s probability of default is the probability that the asset yields no return to its holder over its lifetime and the asset price touches zero. This is used by investors to calculate the expected loss from an investment. (more…)

Difference Between ETF and Mutual Funds

Difference Between ETF and Mutual Funds

Introduction Mutual funds and ETF offer investors pooled investment product options. Both the products can typically have anywhere from 100 to 3000 different individual securities within their funds. These investment products are built from the same pooled fund concept and are regulated by the same principle securities laws namely ›Securities Act 1933. ›Securities and Exchange Act 1934. ›Investment Company Act 1940. (more…)