It Feels Like the Game Is Rigged

Re:It Feels Like the Game Is Rigged by anonu on Monday February 01, 2021 @01:08AM (#25986063)

Yes and no. You are referring to calculating the variance of a portfolio which takes into the consideration the covariance of components. You can assume your normal or lognorm distribution of returns. All fine and good.

But if INTC becomes the ire of r/wsb, you can throw any sort of historical covariance out the window. There is NO hedge for this.

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Re:It Feels Like the Game Is Rigged by harry8 on Monday February 01, 2021 @01:13AM (#25986094)

>You can assume your normal or lognorm distribution of returns.

I think we're seeing how that all comes unstuck on a grand scale right about now. The assumption doesn't hold at the times you really need it and boom!

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Re:It Feels Like the Game Is Rigged by anonu on Monday February 01, 2021 @01:21AM (#25986134)

If you're talking about GME its not really a grand scale. The US Stock market cap is $50 trillion. GME is $22bn as of Friday afternoon or 5 basis points of the rest of the market.

Yes, big SD moves happen frequently enough that we have to revisit our normal distribution models. But GME isn't really the reason to do this.

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Re:It Feels Like the Game Is Rigged by harry8 on Monday February 01, 2021 @02:36AM (#25986462)

Have you tried that advice at Melvin?

Size of the market doesn't change the risk you carry of wrong assumptions. Have LTCM if you want another spectacular failure of risk management with wrong assumptions like these. There's plenty more when you're done with that one.

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