A stop loss serves as a risk management tool, helping investors limit potential losses by automatically triggering the sale of a security when its price reaches a predetermined level. This level is set below the purchase price for long positions and above the purchase price for short positions. By implementing …

Stock-bond correlation is a critical factor in portfolio diversification, influencing how different asset classes interact during market movements. The correlation between stocks and bonds helps investors understand the degree to which these two assets move in relation to each other. In the years of 2010s, stocks and bonds have had …

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 …

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 …

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 …

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 …

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 …

The martingale betting system is a popular gambling strategy that involves doubling one’s wager after each loss in the pursuit of recovering previous losses and securing a profit equal to the original bet. The underlying idea is that, statistically, a win will eventually occur, allowing the player to recoup losses …

In the journey of life and business, we often hear about the power of focus and concentration. But what if we told you that there is one number that stands as the most perilous, the one that can quietly sabotage your efforts, be it in your career or your entrepreneurial …

Credit indices are financial instruments used to gauge the overall creditworthiness and risk of a particular market or sector. These indices provide investors with a snapshot of credit risk within a specific market, allowing them to assess the health and stability of that market. There are two prevalent categories of …