Definition The protective put strategy is a risk management technique used by investors to guard against potential losses in their underlying stock or asset holdings. By purchasing a put option, an investor can secure the right to sell their asset at a specific price within a defined period, thus providing a safety net against unfavorable market movements.
Components of a Protective Put Underlying Asset: This is the stock or asset that you currently own and seek to protect.
Definition Quantitative investing is a systematic approach to investing that leverages mathematical models, statistical techniques and data analysis to make informed investment decisions. Unlike traditional investing, which often relies on subjective judgment and qualitative analysis, quantitative investing focuses on numerical data and computational methods to identify patterns and opportunities in financial markets.
Key Components of Quantitative Investing Data Collection: The foundation of any quantitative strategy is the collection of vast amounts of data.
Definition The Relative Strength Index (RSI) is a popular momentum oscillator that gauges the speed and change of price movements. Designed by J. Welles Wilder, it ranges from 0 to 100 and helps traders identify potential overbought and oversold conditions in the market. Typically, an RSI above 70 indicates an overbought condition, while an RSI below 30 suggests an oversold condition.
Components of RSI Period: The standard RSI uses a 14-day period, but this can be adjusted based on trading preferences.
Definition Risk Parity is an investment strategy that focuses on balancing the risk contributions of various asset classes within a portfolio. Rather than allocating capital based solely on expected returns, risk parity allocates capital in a way that equalizes the risk across different investments. This means that each asset class contributes equally to the overall portfolio risk, which can lead to enhanced diversification and the potential for better risk-adjusted returns.
Definition Sector rotation is an investment strategy that involves shifting investments among different sectors of the economy to capitalize on the cyclical performance of industries. The strategy is based on the notion that different sectors outperform or underperform during various phases of the economic cycle, such as expansion, peak, contraction and trough.
Components of Sector Rotation Economic Cycles: Understanding the four main phases—expansion, peak, contraction and trough—is crucial as each phase influences sector performance differently.
Definition Short selling, often referred to as shorting is a trading strategy that allows investors to profit from a decline in the price of a security. This technique involves borrowing shares of a stock or asset from a broker, selling them on the open market and then repurchasing them later at a lower price to return to the lender.
Key Components of Short Selling Borrowing Shares: Before selling short, an investor must borrow shares from a broker, which often charges a fee or interest for this service.
Definition The Standard & Poor’s 500 or S&P 500, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices and is considered an indicator of the health of the U.S. economy.
Importance of the S&P 500 The S&P 500 is widely regarded as the best single gauge of large-cap U.
Definition Statistical Arbitrage, often referred to as Stat Arb, is essentially a market-neutral trading strategy that seeks to exploit pricing inefficiencies between assets. It relies on statistical models and patterns, analyzing historical price data to identify mispricings that the market might correct over time.
This strategy allows investors to take advantage of temporary price discrepancies between correlated securities, leading to potential profits when those prices converge.
Key Components Quantitative Analysis: At the heart of Statistical Arbitrage lies quantitative analysis, where traders use mathematical models and algorithms to analyze data.
Definition A Straddle Options Strategy is an advanced trading technique that involves purchasing a call option and a put option for the same underlying asset, with the same strike price and expiration date. This strategy is particularly beneficial for investors anticipating significant price movement but uncertain about the direction of that movement.
Components of a Straddle Call Option: This gives the investor the right, but not the obligation, to buy the underlying asset at a specified price within a specified time frame.
Definition Sustainable finance is a broad term that encompasses financial activities supporting sustainable development, emphasizing the need for responsible investment strategies that consider environmental, social and governance (ESG) factors. It aims to direct capital towards projects and companies that contribute positively to society and the environment while generating financial returns.
Key Components of Sustainable Finance Environmental, Social and Governance (ESG) Criteria: These are the three central factors used to measure the sustainability and societal impact of an investment.