Can Trading Volume Predict Realized Volatility?

Posted on December 29, 2023 By Harbourfront Technologies

Realized volatility (RV) is a measure that captures the degree of price fluctuation in a financial instrument over a specific period. This metric is valuable for investors and traders as it reflects the true price action experienced by an asset, aiding in risk assessment and strategy development. Realized volatility contrasts …

Can Dividend Yield Predict Stock Returns?

Posted on December 25, 2023 By Harbourfront Technologies

Dividend yield is a financial metric that provides insight into the income generated by an investment in the form of dividends, relative to its market price. Expressed as a percentage, the dividend yield is calculated by dividing the annual dividend per share by the current market price per share. This …

Beta Anomaly in the International Stock Markets

Posted on December 21, 2023 By Harbourfront Technologies

Beta is a financial metric that measures the sensitivity of a stock’s returns in relation to the overall market. It provides insights into how much a stock tends to move in response to market fluctuations. A beta of 1 indicates the stock generally moves in line with the market, while …

Is the VIX Index a Reliable Predictor of Future Realized Volatility?

Posted on December 17, 2023 By Harbourfront Technologies

The VIX, commonly known as the “fear gauge,” is a model-free index that serves as a reflection of market volatility expectations for the upcoming 30 days. Essentially, it represents the price of a basket of short-maturity options. The VIX is calculated from the S&P 500 index options’ prices, offering a …

Profitability of Dispersion Trading in a Less Liquid Market

Posted on December 13, 2023 By Harbourfront Technologies

Dispersion trading is an options trading strategy that capitalizes on the spread or difference in implied volatility between index options and individual stock options. The basic premise involves selling index options while simultaneously buying options on individual components of the index. Traders expect that the implied volatility of individual stocks …

Covariance Risk Premium as a Predictor of Market Returns

Posted on December 9, 2023 By Harbourfront Technologies

Various prediction methods are employed in the stock market, leveraging diverse techniques and data sources. Fundamental analysis delves into a company’s financial health, examining factors like earnings, assets, and management. Machine learning and artificial intelligence have gained prominence recently, using algorithms to analyze vast datasets and identify patterns elusive to …

How Hedging Frequency and Volatility Affect Profit and Loss

Posted on December 5, 2023 By Harbourfront Technologies

Delta hedging is a risk management strategy widely used in financial markets, particularly in options trading. The primary objective of delta hedging is to offset or neutralize the directional risk, or delta exposure, associated with an options position. Delta represents the sensitivity of an option’s price to changes in the …

Using a Parametric Implied Volatility Surface for Calculating Value At Risk

Posted on December 1, 2023 By Harbourfront Technologies

Value at Risk (VaR) is a widely used risk metric in finance, providing an estimate of the potential loss on a portfolio or investment over a specific time horizon, under normal market conditions. It quantifies the level of financial risk within a certain confidence interval, expressing the maximum loss that …

Does Kelly Portfolio Outperform the Market?

Posted on November 27, 2023 By Harbourfront Technologies

Position sizing is a critical element in effective portfolio management, playing a pivotal role in determining the overall risk and return characteristics of an investment portfolio. Proper position sizing involves allocating an appropriate proportion of capital to each investment, considering factors such as the investor’s risk tolerance, investment goals, and …

Decomposing Volatility into Idiosyncratic and Systematic Components

Posted on November 23, 2023 By Harbourfront Technologies

Volatility refers to the degree of variation of a trading price series over time. It is a statistical measure of the dispersion of returns for a given security or market index. High volatility indicates a greater potential for significant price swings, both upward and downward, while low volatility suggests a …