ts risk stability element
TRANSCRIPT
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Why is stable risk (Rs element) investable?
• If you trade to manage investor capital, two risk appetites come into play
• Yours – as defined by how you manage your own capital
• Your investors – for their investment in your trading
• Investors expect risk at any time to match expected risk when they invested –
and will monitor any deviations very closely
• Deviations in risk – particularly sudden ones – will make investors lose
confidence in your risk management, and trigger capital calls
• This is the reason why stable risk matters
• The level of risk DOES NOT matter
• Ideally, risk should stay constant
• If risk changes, change should take place as slowly as possible over
time, allowing investors to re-adjust their leverage levels with respect to
you
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INDEX
1. UNDERSTANDING RS
2. IMPROVING ON RS
3. QUESTIONS?
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Rs - Risk stability – What is it?
We track worst potential loss in a strategy over time
Risk stability is the difference between max and min potential loss
A VERY IMPORTANT badge at the TS Challenge, it has an important
weight in the TS Score1
2 Stable Risk = Predictable Risk = Investable Risk (if it delivers returns :-)
3 Designed to re-assure investors that risk is managed to a PREDICTABLE level
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Rs – An example for stable risk
A Difference > 1 will penalize your Risk Stability
Risk in this specific date
Minimum risk in last month
Maximum risk in last month
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Rs – An example for unstable risk
Wouldn’t this make you nervous?
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INDEX
1. UNDERSTANDING RS
2. IMPROVING ON RS
3. QUESTIONS?
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Rs – How to improve?
Can investors trust that a strategy won’t overstep their risk appetite?
If they don’t trust, they won’t invest
Consider trade duration, market and asset volatility in leverage decisions1
2 Improvements to leverage consistency (Lc) will likely improve risk stability
3 Experiment with the effects of your leverage decisions on your risk profile
4 Use our Risk Manager for free to improve your Lc and Rs badges
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INDEX
1. UNDERSTANDING RS
2. IMPROVING ON RS
3. QUESTIONS?
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Questions?
Trading is hard – no wonder there are unanswered questions!
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Can you do better?
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