Investment Beahvioral Finance

Sharpe ratio depicts the risk premium of an asset or portfolio in relation to the total risk

Treynor ratio depicts the risk premium in relation to the systematic risk Beta

Variance refers to the spread of a data set around its mean value, and so it measures the risk of an asset/portfolio. 

Covariance refers to the measure of the directional relationship between two random variables.

A positive covariance means both investments' returns tend to move upward or downward in value at the same time. An inverse or negative covariance, on the other hand, means the returns will move away from each other.

covariance talks about the direction – positive or negative – of the relationship between two variables.

correlation talks about the direction, as well as, the strength of the relationship between the variables.

\(f' = {1\over\ x}\)

\(f' = {1\over\ x}\)

\(f' = {3\over\ x}\)

\( = {-sin(x)}\)

\(f'(x) = {cosx}\)

VaR systematic = RP x Qstd x Var(Index) x Beta

Technicians seek to project the level at which a financial instrument will trade, whereas fundamental analysts seek to predict where it should trade.

Convexity measures how the interest rate sensitivity of a financial instrument changes with the level of rates. It contributes to price changes when rates start to move.

• Convexity is a measure of the curvature in the relationship between bond prices and bond yields.
• Convexity demonstrates how the duration of a bond changes as the interest rate changes.
• If a bond's duration increases as yields increase, the bond is said to have negative convexity.
• If a bond's duration rises and yields fall, the bond is said to have positive convexity.