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Risk Adjusted Returns

Zdjęcie autora: Jarosław JamkaJarosław Jamka

Since July 31, 2023, the S&P500 index has already had 4 major corrections with declines of 10.3%, 5.5%, 8.5% and the last correction of 4.3% - see Figure 1. During this time, the S&P500 rose by 30.7% and the Magnificent 7 index by as much as 70.4%.



Figure 2 shows the returns on the same indices but on a risk adjusted basis (the rate of return is divided by the realized volatility). Mag7 gave the highest rate of return after adjusting for volatility. Figure 3 shows the volatility of individual indices (annualized volatility is calculated for a rolling 3-month period).




Bonus chart: Figure 4 shows the realized volatility of Bitcoin against the Mag7 and S&P500.

Figure 5 shows the risk adjusted returns. Interestingly, in the case of Bitcoin, only since the election have we had risk-adjusted rates of return significantly higher than Mag7 or S&P500.




Nevertheless, since November 5, Bitcoin has already increased by 49.7%, and Mag7 "only" 9.8% - see Figure 6. Meanwhile, Figure 7 shows the same indices since November 5, 2024 on a risk-adjusted basis.





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