Question of the Week – Portfolio Management

The statistical metrics discussed are:

• Low mean. Could the average stock
  return be overstated? Absolutely. But understating the mean affects all
  returns, not just the outliers.
• High standard deviation. Again,
  the standard deviation may play a role. These factors are all related to each
  other. But the standard deviation applies to all dispersion, not just the tail.
• Positive skewness. Skewness very
  well could be playing a part here. The problem with this choice is that an
  event like a large loss would be indicative of negative skewness.
• High
  kurtosis. Kurtosis is the metric used to capture tail risk. If
  the extreme events are more likely than expected, that means that the kurtosis
  is higher than expected.