Upside and Downside Risk

Month

2 The variance is percent squared. In other words, if you stated the standard deviation of 9.96% in decimal terms, it would be 0.0996 but the variance of 99.15% would be 0.009915 in decimal terms.

You are looking at the historical standard deviations over the last 5 years on two investments. Both have standard deviations of 35% in returns during the period, but one had a return of -10% during the period, whereas the other had a return of +40% during the period. Would you view them as equally risky?

Why do we not differentiate between "upside risk" and "downside risk" in finance?

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

Get My Free Ebook


Post a comment