3 ms·
There's no trick in the analysis. Only in the axioms. If you have two assets that really do have zero expected return but vary independently, it's trivial to s
by Schroedingersat 4y ago
There's no trick in the analysis. Only in the axioms.
If you have two assets that really do have zero expected return but vary independently, it's trivial to see that moving equity from the one that went up to the one that went down (or went up less) will net you a return.
The 'trick' if you will is that there aren't actually any uncorrelated assets.
- beagle3 4y agoWhat you wrote is only true under additional conditions (e.g. mean reverting processes). In the i.i.d case, you are wrong, even if items are correlated.
- v0idzer0 4y agoWhat about inversely correlated assets? Still correlated but presumably would work for this just the same. Bull vs bear ETF on the same security should bring near perfect inverse correlation.
- imtringued 4y agoAs others said the asset itself has a baked in return but let's entertain it for a bit. Effectively what the article is describing are speculative profits that can only be made by switching between two assets. The obvious result is that trading between the two assets will reduce their volatility and hence correlate them. The profits that you can make here are the usual kind of volatility premiums that any normal daytrader earns.