What is the tail risk?
The risk of the tail is the type of risk that occurs when a specific investment in the portfolio shows the potential to move more than more than three standard deviations from the established diameter for this safety. Movement can be positive or negative, which increases the chances of increasing safety worth more than expected, or generating the loss that is above the average. The assessment of the degree of deviation and the amount of tail -related risk is common in view of the revenue from the hedge fund.
The key to assessing the risk of the tail is to understand what is meant by the diameter and standard deviation. The diameter is simply a normal or expected asset value. Identification of the average allows you to determine what type of price activity can be adequately expected from the movement of safety, due to market conditions as they exist today. A standard deviation is the measurement of security volatility, usually based on the previous design of that particular possession. For securities that have a history that they are somewhat stable is fromChylka considered low, while safety that has a history of significant up and down movement would have a high standard deviation.
Tail risk assessment is useful for investors, especially if there is a desire to reduce the degree of risk associated with assets contained in the portfolio. As the information available suggests that the degree of standard deviation is from an acceptable extent, the volatility of the asset is also increasing. If this happens, the investor must find out whether this wider than the average deviation from the average is likely to lead to sufficient return to be useful to stick to security or whether it should be sold before the trend.
The risk of tail can point to larger yields or greater losses. Tracking is necessary if the investor wants to protect the integrity of the portfolio and continue to move towards its defined investment goals. After determining the diameter mustThe investor shall be responsible for other factors that could lead safety to perform in a way that is similar to a historical pattern, allowing some possible divergence in market activities that will have a direct impact on the performance of the asset. The assessment of the tail risk allows you to identify the possibility of higher standard deviations, to determine whether it is likely that this deviation will result in profit or loss, and then choose a procedure that is considered to be the most appropriate.