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IB risk analysis


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I opened my IB account Aug 2014 and just ran a report since inception.

There's a return section and there's a risk analysis section.

Combining these two, is it higher return meaning higher risk as they taught in school?

 

Any comments for the risk section?

Thanks

 

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Guest Schwab711

In your case the higher SD is probably somewhat misleading. Higher returns (you look like you've gone straight up recently) lead to higher volatility, all else equal. However, your Sharpe and Sortino ratios are very high so at least some of the SD is due to significant outperformance. Your E(SD) moving forward is likely lower assuming the current SD is close to the 'true' SD value. Lot of semantics!

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In your case the higher SD is probably somewhat misleading. Higher returns (you look like you've gone straight up recently) lead to higher volatility, all else equal. However, your Sharpe and Sortino ratios are very high so at least some of the SD is due to significant outperformance. Your E(SD) moving forward is likely lower assuming the current SD is close to the 'true' SD value. Lot of semantics!

 

 

Thanks for the comment.

 

The big volatility was caused by my concentrated value plays.

This is the result of margining up to 30% of my long term buy and hold positions. The turn over rate in terms of transaction value is estimated to be around 50% to 100%.  The value plays contributed to half of the return.

 

Oct, 2014 was a crazy month. (10% jump) I didn't look into which positions caused the biggest jump.  Nonetheless, even I was surprised by that big movement. I try to stabilize the return by having a reasonable exit price for value positions. I don't like to hold value positions longer than 1 year.

 

The volatility was also reduced by selling covered calls on value plays. I am not sure I made money from the covered calls but they reduced the risk sightly. Many times, the share price jumped more than the strike price. I set the strike price so i am satisfy with the return.  I have no problem letting the value positions go.

 

Quality + value + concentration  = powerful result.

 

 

You said:"Your E(SD) moving forward is likely lower assuming the current SD is close to the 'true' SD value. Lot of semantics!"

 

I can update the risk analysis couple months from now  or year end and see what happens.

 

 

 

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Take the IB risk results with a grain of salt.  They make a lot of assumptions, which may or may not be accurate.  For example, option volatility and stock price are correlated, but I don't think this is included in their calculations.  Also, they make various beta assumptions.

 

The numbers are certainly better than most brokers give you, but make sure you understand them in great detail before betting the farm on them.

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