The Quantopian Podcast Quant Radio: Rethink Your Portfolio Strategy with Skewness
Dec 25, 2024
Discover the surprising world of investment skewness and its impact on your portfolio. Learn why diversification may not always serve you well, and how smaller companies can unlock extraordinary gains. Unpack the unexpected negative skewness of green stocks compared to traditional firms. Explore the delicate balance between risk and reward, especially in the realm of bonds and cryptocurrencies. This discussion will challenge your assumptions and provide fresh insights that could transform your investment approach.
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Skewness of Returns
- Investment returns involve more than averages and risk.
- Consider "skewness", which describes the shape of return distribution and likelihood of extreme gains.
Understanding Skewness
- Skewness describes the shape of investment return distribution on a graph.
- A positive skew indicates a higher probability of large positive returns, while negative skew suggests the opposite.
Diversification and Skewness
- While individual stocks often show positive skew, diversified portfolios can exhibit negative skew.
- This happens because positive news for one stock might be offset by negative news for another.