Moments

Moments

In wealth management, moments refer to statistical measures that describe the shape and distribution of investment returns. The first four moments are:

Mean: The mean is the average return over a given time period. It is calculated by summing the returns and dividing by the number of periods.

Variance: The variance measures the variability of returns around the mean. It is calculated by subtracting each return from the mean, squaring the differences, and dividing by the number of periods.

Standard Deviation: The standard deviation is the square root of the variance and measures the dispersion of returns around the mean. A higher standard deviation indicates higher volatility and greater potential risk.

Skewness: Skewness measures the asymmetry of the return distribution. Positive skewness indicates that the distribution has a longer tail on the right side, while negative skewness indicates a longer tail on the left side.

Other moments that may be used in wealth management include kurtosis, which measures the degree of peakedness of the return distribution, and higher order moments, which capture more complex features of the distribution. Understanding moments is important in wealth management as it can help investors and wealth managers to evaluate the risk and return characteristics of investment portfolios and make informed decisions about asset allocation and investment strategies. It is important to work with a qualified financial professional to evaluate investment opportunities and develop an investment strategy that aligns with your individual needs and goals.

Certify and Increase Opportunity.
Be
Govt. Certified Wealth Manager

Go back to Tutorial