Asymmetric Risk Reward

Asymmetric Risk Reward

An Asymmetric Risk/Reward is an imbalance between the risk and the reward. Thinking in terms of risk-to-reward ratios, a positive asymmetric risk-to-reward is when the risk taken was less than the actual profit, or when the potential for loss is greater than the potential for gain.

Asymmetric Risk Reward

Asymmetric Risk Reward, then, can be expressed as either the potential risk vs. reward of an investment position or trade or the actual outcome of a position taken. The potential asymmetric risk vs. reward of an investment position or trade is an asymmetric risk reward setup. When we speak of asymmetric risk reward outcome of a closed position that has been bought and sold, we are speaking more of asymmetric payoff.

Asymmetric Risk Reward can also involve the asymmetry of profit and loss distribution of the entire portfolio or the asymmetric risk reward profile of a portfolio monthly return data. We call these asymmetric return distribution and asymmetric risk reward ratio.

 

Asymmetric Risk Reward Positive Asymmetry

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A positive asymmetrical risk/reward occurs when the potential or realized reward is greater than the potential or realized loss.

When we speak of asymmetrical risk/reward, we typically mean it is a positive one. But, an asymmetric risk/reward can also be negative.

Asymmetric risk is the risk an investor faces when the gain realized from the move of an underlying asset in one direction is significantly different from the loss incurred from its move in the opposite direction.

Asymmetric reward is the reward an investor may achieve when the gain realized from the move of an underlying asset in one direction is significantly different from the loss incurred from its move in the opposite direction.

For more information, see:

 

Asymmetric Payoff

Asymmetric Investing

Asymmetric Risk

Asymmetric Trading System

Asymmetric Return Distribution

Asymmetry Ratio

 

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