Initial Return is the product of a collaboration between finance professionals, academics, and investors. We produce high-quality, educational content for investors, traders, and finance students.
We start this lesson by discussing what is meant by (stock) return volatility. Then, we explain the return volatility formula. Finally, a simple return volatility calculator is provided for your convenience. Jump to: What is (stock) return volatility? Imagine an investor who bought shares of a stock three years ago. According to the investor’s calculations, […]
In this lesson, we introduce a simple yet really useful measure of investment performance. In particular, we discuss the arithmetic average return formula and provide a practical arithmetic average return calculator. It is really important for investors to be able to accurately assess the performance of their investments. In that sense, arithmetic average (or mean) […]
In this post, we explain the geometric average return formula using numerical examples and discuss how it differs from the arithmetic average return. We provide a practical geometric average return calculator as well. Jump to: Geometric average return formula The geometric average return formula (or the geometric mean return formula) can be written as follows: […]
Risk pooling is an important concept that is particularly relevant for areas such as finance, insurance, supply chain management, and healthcare. In this post, we offer a definition of risk pooling, provide examples, and discuss the relevance of risk pooling in different areas. We draw a distinction between risk pooling and risk sharing as well. […]
As part of our investments course, we have already covered two important investment performance measures: Jensen’s alpha and Sharpe ratio. In this post, we focus on the Treynor ratio, which is another popular risk-adjusted performance measure. In particular, we explain the Treynor ratio formula and offer an easy-to-use Treynor ratio calculator as well. Jump to: […]
When we discussed investors’ risk preferences, we distinguished between risk-averse, risk-neutral, and risk-seeking behavior. We also explained that risk-averse investors expect compensation for bearing risk, which is called a risk premium. But, how do measure risk aversion? The answer is the risk aversion coefficient. It quantifies the degree to which an individual dislikes risk. In […]
Humans are emotional beings. Good news makes us happy, bad ones cause sadness. We feel proud of our successes and regret our mistakes. We may be thrilled to see a celebrity on the street and would fear missing our flight if we leave the house too late. Given that emotions have such a central place […]
Liquidity is a fundamental concept in finance and trading. But, what is liquidity in stocks in particular and financial markets in general? What is the definition of liquidity risk? In this post, we address these questions by offering a definition of liquidity in economics and finance. Jump to: Definition of liquidity in economics and finance […]
The NFT bay website was launched in November 2021 by Geoffrey Huntley, an Australian artist, in an attempt to draw attention to issues associated with non-fungible tokens, or NFTs. NFTs have become immensely popular as a means of certifying ownership of unique assets. They are commonly used within the context of digital art. Some NFTs […]
When evaluating the performance of mutual funds, ETFs, or your own portfolio, it is vital to do that on a risk-adjusted basis. That is, it would be misleading to compare investment opportunities on the basis of returns only as higher returns normally require bearing more risk. In this post, we discuss one of the most […]
Step-by-step tutorials:
Downloading stock price data
Plotting stock prices and returns
Creating a histogram of stock returns
Descriptive statistics for stock returns
Computing the correlation between two stocks
Modern portfolio theory:
Portfolio return
Portfolio risk
Efficient frontier
Optimal risky portfolio
Market equilibrium:
Capital asset pricing model (CAPM)
Arbitrage pricing theory (APT)