Man AHL created the AHL Explains video series in an effort to demystify quantitative investing through an engaging and user-friendly medium. The videos seek to bring essential quantitative investing concepts to life through illustrations and graphics, and explain the key concepts in futures trend following in a simple and accessible way.
How can investors and traders define risk? Price volatility is one popular measure, but as volatility can refer to price movements up or down, it isn’t as useful as a measure designed to gauge “what your losses would be if markets move against you.” This is how Man AHL defines risk, as explained in this video, and they provide two different means for measuring it: Value at Risk (“VaR”), which is based on historical data; and Expected Shortfall (“ES”), which is based on complex random-number-generator price simulations. The difficulty is in projecting future risk, rather than measuring what risk has been historically.
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