A common belief: adding extra asset to a portfolio will automatically reduce the portfolio risk. We provide a counter-example resorting only to the simplest algebra and explain why this erroneous belief is so common.
Continue reading "Perfect diversification means no asset can be dropped from (rather than added to) a portfolio"
After this lesson you will understand how to compute the compound return, discount factors and the CAGR (compound annual growth rate: nominal and inflation adjusted). You will also learn about the continuously compounded (exponential) interest and logarithmic returns. Finally, you will be able to calculate the effective rate of interest of a credit or of a savings scheme.
Continue reading "Numeracy for Traders – Lesson 2 – Exponentiation, polynomials, logarithms and the power of compound returns"