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Visualizing The Extremes Of Risk And Reward
With all the hope slooshing around the world, it is likely no surprise that some risk-reward connections have 'broken' or become misaligned. In an effort to simplify the view of asset class risk and return, we present Morgan Stanley's Yield vs Volatility chart. It seems relatively plain to see that the Russell 2000 (and European stocks SX5E) are dramatically over-priced (under-'yielded') relative to their risk, while Asian and European High Yield credit (and to a lesser extent Asian and European Investment Grade Credit) are trading notably cheap relative to their volatility. So for all those performance chasing asset-allocators who remain fundamental bulls, buying European High Yield credit seems the best bang for your buck - instead of piling into more Russell 2000 beta...interestingly the S&P 500 appears 'fair' compared to risky sovereigns, global stocks, and global credits from a risk-reward perspective.
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If Ben Bernanke was a Pokemon, he would be a Magikarp. He would pester you all the time and only have one attack: Splash the Cash. Similar to Magikarp’s “Splash” attack, it would have no effect. Supposedly Wild Bernanke’s evolve into a big badass dragon, but we’re also supposed to believe that we can outgrow our deficit and there’s only so much BS we can believe in at any given time.
I have used Modern Portfolio Theory to eliminate risk from my portfolio of blue chip stocks, so risk is of absolutely no concern to me. It has been proven that inferring future correlations from historical correlations is by far the superior method of analysing the risk in a portfolio.
I think you are at considerable risk of being butt raped (aka Corzined) if you hang around stock market molesters too long.
But hey....whatever floats your boat. :)
But we've never RE-Elected a black President. Nor have we ever elected a Mormon. Therefore history tells us that neither candidate will win. MDB you can do better. Didn't even make me chuckle.
Regarding that chart, I'm reminded that when credit and equity disagree, credit's pretty much always right -- after all, they're the folks who can work an HP12C, while the equity chumps are basically used car salesmen.
If Asian and Euro HY has been sold off, that sounds like a sucker's bet -- smart money's exiting. That "premium" is likely mostly a portfolio default premium that you don't actually get.
If R2k looks expensive, that sounds about right. All the idiots who think a baby with a blackberry can trade stocks are piling into no-name common hoping for a 10-bagger. Not going to happen.
That said, I'm usually the last to figure anything out....
So true CD. My "hold time" is somewhere between 2-10mins on a trade. Pity that the market has evolved to this.
Another good one, MDB!
+1 MDB for obvious satire "It has been proven that inferring future correlations from historical correlations is by far the superior method of analysing the risk in a portfolio" ROTFLMAO, brilliant.
Yeah? Well I use the Arbitrage Pricing Theory which would kick our MPT down. Only thing left is figure out the parameters using some regressions that assume normal distribution knowing full well none of my damned variables follow it.
Maybe if those geologists had used Modern Earthquake Theory they wouldn't be spending the next 6 years with a bunkmate named Guido.
You!!! Youuuuu!!!!!!!! aneurism
"Risk" is a relative term. I had a skydiving client who was scared witless of the stock market and a very conservative dirt farmer who traded options and futures.
We often conflate risk with familiarity.
You mean vol and standard deviations are not appropriate risk measurements?
Whowoudathoughtit!
SPX has a 7 percent yield? LOL. On my crappy planet, SPX only yields 2.2%. Beam me up, Scotty!
Without knowing how these flaky-ass 'loss-adjusted yields' are calculated, this chart is just meaningless gibberish.
In the Star Trek universe, this market would be the episode where the transporter is broken and splits Captain Kirk in 2, his good side and his bad side. His good side grows weaker and has no will, while his bad side drinks brandy and tries to get into the pants of the Yeomen. This market wants to go down on some hairy snatch. It wants to go down hard.
Long Brandy, short nice guys.
JP Morgan is one of the largest contributors to instability so why lietn to anything they have to say?
Sorry, didnt read, just had to post. Risk and reward? Again, risk and reward??????
Piss off, jon corzine, henry paulson, tim geithner, ben bernank, name another 100 shits.
Risk and fucking reward?????? Aye, for us. Try again ZH, risk and reward? I am fucking fuming here.
At this point in time the only real reward I see is in buying metals, both precious and semi-precious(lead)...at least you can't get Corzined. Just watch out for the tungsten
good morning muppets !!
spx @ 1417 or so...IF you are patient....you might be able to short @ 1425+ later this week/early next week....as for me, i'm short avg price 1450..and been riding my shorts from QE3 announcement (spx 1475 , eur 1.315 day after QEorganizer #3).
will keep riding til spx sub 1000, THIS year bc QEorganizer PRINT BABY PRINT = RAPE the middle class with DEBT and INFLATION to "save" the fat cats casino..QEorganizer is OUT DA DOOR biatches !!
so anyways i will continue to enjoy my life and just KEEP RIDING MY spy shorts and eur shorts!!
spx avg short price = 1450, eur avg short price = 1.315...yes it has not been going straight down...but watiing for major crash...it will happen, NO THEY CAN'T manipulate forever !! crash baby crash this stupid house of cards.
Did someone say "Risk and Reward"?
Here's a little "Old School" for you.
http://michaelepicray.com/2012/07/11/the-divorce-of-risk-and-reward/
Its those confounded Bollinger bands again... Yea thats it.