Educate me: What's a good way to calculate risk? What about Sharpe?

bankroll

bankroll

What's a good source to educate myself about all I have to know about risk, step by step?

Investopedia has many pages on a wide variety of topics but clearly not in a well organized way, you may jump from pages onto other pages without any particular order.

For example, how would you measure this one:
http://www.followingthetrend.com/the-trading-system/trend-following-track-record/
Andreas uses the Sharpe ratio. Which may or may not be good.

Also notable is http://www.amazon.com/Misconceptions-Risk-Terje-Aven/dp/0470683880
Legal download from a French University's page: http://didel-old.script.univ-paris-...29mX1Jpc2sucGRm&cidReset=true&cidReq=EL01AZ12
(So it must be legal)
 
Quote from bankroll:

What's a good source to educate myself about all I have to know about risk, step by step?
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One way is to determine how close you are to throwing up. Another is to assess how close your bowels are to loosening.

But before you get that far, I suggest you read The Nature of Risk.
 
Do you want technical risk v an overview of risk?

eg;

http://www.amazon.com/Against-Gods-...s&ie=UTF8&qid=1388767862&sr=1-4&keywords=risk

Even the black swan and Antifagility books are good reads for a different approach.

http://www.amazon.com/Antifragile-T...F8&qid=1388767982&sr=1-1&keywords=antifragile

The trend follower Andreas book is a good one for pure trend following and will help with some discussions but you will still likely need to refer back to definitions of risk in most books. Most things like the sharpe ratios and sortino ratios etc are mainly designed to compare similar return profiles.....they might not necessarily reveal the risks.

Otherwise, DBPs definition above of the vomit in a bucket days are great - those are the days that you know you have taken on too much risk. (I have had them they are not pretty)
If you can determine when others are having those days, opportunities for low risk trades can occur. :)
 
Quote from dbphoenix:
One way is to determine how close you are to throwing up. Another is to assess how close your bowels are to loosening.
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This must be something funny. I understand the words but not the sentence. Also not a native speaker.

Quote from dbphoenix:
But before you get that far, I suggest you read The Nature of Risk.
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Thanks.

@SIUYA
For you too!

Antifragile has been on my reading list anyways.
 
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Edit to the first post:

It would be really handy to have a metric to measure the level of risk by a range of asset classes

including:

- mutual funds, any kind of 3rd party funds, hedge funds such as the one in my OP
- my active trading
- OTC market investing such as venture capital or angel investing
(I also wonder where country risk comes to the picture assuming some international ventures)

All in all: not easy I know.

What comes close to what I am looking for? Or am I totally missing the point with this?
 
Quote from bankroll:

This must be something funny. I understand the words but not the sentence. Also not a native speaker.
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Yes, it's terribly funny. :)

All that aside, what you may be looking for is a measure of probability, i.e., what is the likelihood that whatever you're thinking of investing in will blow up in your face. For a mutual fund, for example, this probability is low. However, the probability that the fund will perform to your expectations is also low. If you're looking to be an angel, the probability of losing your money is considerably higher, but so might be the potential returns.
 
Quote from bankroll:



It would be really handy to have a metric to measure the level of risk by a range of asset classes

including:

- mutual funds, any kind of 3rd party funds, hedge funds such as the one in my OP
- my active trading
- OTC market investing such as venture capital or angel investing
(I also wonder where country risk comes to the picture assuming some international ventures)
More...


Usually if you wish to compare countries, funds etc....then you should compare them to similar type entities/vehicles/structures.
Then you also have to factor in what is the return relative to the risk. This way you can asses questions like "Am I willing to take on this sort of risk to achieve this sort of return, betweem fund A and B - which is better" This is where people look at Sortino and sharpe ratios etc.
There is also Var (Value at risk) that you might be interested in looking at, but I dont think you should delve into this. Its more for portfolios (personally I think its miss understood to most peoples detriment)
You might like this
https://personal.vanguard.com/pdf/flgerm.pdf

This is very different to your active trading and again very different to venture capital investing. The results, measurements and methodologies/strategies are virtually unable to be compared except over the long term and using fairly broad guidelines.

//////////////
as for vomiting in a bucket....I think every language knows when you have that feeling that you should not have done something, you are in deep trouble, there is little you can do about it at present, and always in the back of your mind you know you should not have let it come to this. :) a horrible, but equally so an experience you should have as a trader....liberating and one you dont want to repeat often.
 
My friend has a private equity fund and I thought it would be insightful to compare his risk portfolio (or whatever it is called) to more traditional investments.

This and my trading, I thought could be measured year-on-year.

Thanks for your tips, I start with the Vanguard PDF!
 
VaR is, in fact, the most common approach that allows you to consistently calculate a measure of "riskiness" for a given portfolio of potentially diverse assets (incl private equity and whatever other random crap you might have). There are many flavours of VaR out there.
 
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