![]() Investments that zig when stock markets zag (and offer a positive expected return) are highly demanded for their ability to hedge. One potential reason for the lower return is that these assets are valuable for other reasons, such as low correlation to the stock market. There are some highly volatile assets whose realized returns have been lackluster relative to those of other similarly volatile assets. The more volatile an asset is, the higher its historical returns have usually been. There is an approximate and positive relationship between risk and return.The risk and uncertainty around an investment’s return is traditionally proxied by the standard deviation (a.k.a.In other words, expected return is the compensation that we get paid in return for taking on uncertainty (uncertainty around inflation, the economy, etc.). Exposing your portfolio to risk generates returns over time. In quantitative finance, risk is viewed like a resource. For a given level of risk, we want to make sure that we are getting as much return as possible. Quantitative finance (at least on the portfolio management side) is all about finding optimal portfolios. ![]()
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