::Free Statistics and Forecasting Software::

v1.2.1

 

:: Investment Diversification - Free Statistics Software (Calculator) ::

All rights reserved. The non-commercial (academic) use of this software is free of charge. The only thing that is asked in return is to cite this software when results are used in publications.

The word risk is misused in financial circles since it is usually considered to be synonymous with variability, whereas the more common meaning of the word in lay circles is probability of loss. This demo takes a simple company scenario which is endowed with a high variability, but still has a positive expectation, and shows that if a portfolio of such companies were invested in, and if there were some independence in the experience of these companies (i.e diversification), then the probability of loss for the portfolio is negligible. Use risky() to see the result for one year with a portfolio of n=25 companies, and risky(100) for 100 simulations of this portfolio, showing the slim chance of a loss. The technical point of this program (and several others) is that sample means have an SD that is (1/sqrt(n)) times the SD of the population sampled. The practical implications of this are sometimes under-appreciated.

Send output to:
number of companies 
number of simulations 
Chart options
Width:
Height:



Source code of R module
Top | Output | Charts | References



Cite this software as:
Weldon L., (2017), Investment Diversification (v1.0.3) in Free Statistics Software (v1.2.1), Office for Research Development and Education, URL https://www.wessa.net/rwasp_risky.wasp/
The R code is based on :
Weldon Larry, R Programs for Statistics Education, Simon Fraser University, URL http://www.stat.sfu.ca/~weldon/Programs
Weldon Larry, Instructions for using R programs for Statistics Education, Simon Fraser University, URL http://www.stat.sfu.ca/~weldon/instructions.doc
Top | Output | Charts | References

To cite Wessa.net in publications use:
Wessa, P. (2017), Free Statistics Software, Office for Research Development and Education,
version 1.2.1, URL https://www.wessa.net/

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Software Version : 1.2.1
Algorithms & Software : Patrick Wessa, PhD
Server : wessa.net

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