From the course: Algorithmic Trading and Finance Models with Python, R, and Stata Essential Training
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Risk management and stress testing
From the course: Algorithmic Trading and Finance Models with Python, R, and Stata Essential Training
Risk management and stress testing
- [Instructor] Effective algo trading means that you're going to need controls to make sure that your models don't end up causing massive losses. The last thing you want to do is have a model that works most of the time, but blows up and then costs the firm, or yourself, huge amounts of money. So let's look at some basic controls you can start to use to understand what risk looks like. So I've pulled in some data on all stocks that are trading over time, and then I've spit out some stats here on the odds of gaining or losing money over different periods of time in a given month, quarter, or year. Now, on the left-hand side, this table shows us the odds of a particular individual security going up in a given month, as an example, in the 1960s and 1970s and 1980s, et cetera. Then in a given quarter, and then in the year. Now, what you observe, there's some fluctuations over time, right? Like, as an example, the 2020s, which are still in process, right, saw the pandemic, and so we had…
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