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Comments (3)

doobiedoo profile picture
@James Picerno
I don't understand the first graph. I thought you were charting volatility on successive days, but the title says "20-day SP500 return volatility".
hawkeyec profile picture
@James Picerno

Your basic point, while true is really not very interesting to me, at least, because it suffers from two major flaws. First, no forecast of financial variables is ever going to be accurate. The odds of choosing a specific point estimate for an individual variable from a continuous open distribution will always be essentially zero. More importantly, this article focuses only on the stock market but for me, no forecast of the risk-return relationship for a single asset portfolio is relevant. I own an interest in hundreds of risk assets in many categories, stocks, bonds, real estate, metals, cash, and various funds containing a mix of these assets. The real efficient frontier must look at the relationship between risk and return for all assets collectively. Amazingly, my financial services provider actually evaluates my portfolio at regular intervals and is able to find my position on the EF. I have been operating right on that line for about a decade or so, while meeting or exceeding my financial goals. One of the reasons I shifted away from teaching finance to focus on strategic management is the obsession with stocks in financial research. The debt market, for example, is much larger than the stock market, and for me, more interesting. The market for all the various derivative "investments" is larger than either of the other two. There I choose not to wander because the CTAs would eat my lunch.

I have just chosen to follow you because I want to see where this article series is headed. I hope you will explore some of the real issues faced by folks with multi-asset portfolios trying to achieve maximum possible levels of true diversification as well as some of the techniques we might use to better balance risk and return.
"We all live on the same planet but we all live in different worlds" ... Nathaniel Brandon.... James , I don't live in your .64 correlation investment world .For me , it doesn't exist
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