Stock Trading News

A hedge fund and private equity firm both serve a similar purpose in that they both seek to generate returns on investment. However, there are key differences between the two. Hedge funds typically use more aggressive strategies involving liquid investments relative to private equity firms, which focus on illiquid investments. Hedge funds are typically open-ended […]

Spread trading is a trading strategy that involves buying and selling two related financial instruments in order to profit from the difference between their prices. This difference is known as the “spread.” Spread traders aim to make money by betting on the direction in which the spread between two instruments will move (e.g., convergence, divergence), […]

Covariance measures the directional relationship between two variables. Covariance is used in portfolio theory and modern portfolio theory. Covariance is a statistical measure that calculates the degree to which two variables vary together. Covariance can be positive or negative, and it is typically represented by a covariance matrix. Covariance is used in finance to measure […]

Market risk premium is the expected return of a market portfolio versus the risk-free rate. It is used as compensation for investors who are taking on additional risk by investing in the market instead of a risk-free asset like government bonds. The market risk premium can be used to calculate the expected return of individual […]

Dollar-cost averaging (often abbreviated as DCA) is an investment strategy where an investor divides a lump sum of money into smaller, fixed amounts that are invested at regular intervals, regardless of the current price of the investment. The most common example is an individual investor taking their monthly savings and buying assets for their portfolio […]

The quality of a company and which financial, operating, investing, and business metrics to use to assess it can be subjective because it largely depends on its purpose. A for-profit company has a different type of purpose than a non-profit. In this case, we are going to consider the question from the vantage point of […]

Over the long run, an economy boils down to productivity. When we trade markets and invest our money, our goal is to generate income. That income, over the long run, is a function of productivity and is the biggest driving force of economies over time. In the near term, it’s economic cycles that make the […]

In the US, from 1802-2012, the real (inflation-adjusted) returns of stocks have been between 6 and 7 percent. Bonds have returned between 3 and 4 percent. Bills – which are safe government bond securities and have a duration of less than one year – have a return between 2 and 3 percent. Some might also […]

In An Overview of the Leveraged Buyout (LBO) Financial Model, we discussed the basic main inputs into a private equity LBO model, assumptions, how debt and financing works, valuation multiples and financial metrics, and how each of these inputs affects outputs and the feasibility of a deal occurring. Here, we are going to take a […]

What Is Modern Portfolio Theory? Modern portfolio theory (MPT) is a framework for analyzing and making decisions about investment portfolios. It was first developed by Harry Markowitz in the early 1950s and has since become one of the most important ideas in finance. MPT is built on the idea of diversification, which is the concept […]