Question

Hi,

I'm new so this would be my first question.

In assessing predictability or likely outcome for an algorithm dealing with random variables in the stock market, which quantifiable variant, if their is one, is best suited for my algorithm. In other words, is their a quotient that takes into account standard devs attributed to say political events, natural disasters, etc? Pretty vague question but I'm new so just testing Chegg out...Thanks.

Answer 1

From your description it is clear that you need a quotient that takes into account standard deviations attributed to say political events, natural disasters, etc?

Ans - For such situation you can consider Return of a stock as a quantitative variable. Which will be getting affected for any political events, natural disasters, etc. Then you will have your previous returns and by adding this new return you can compute standard deviation, which will tell you the Risk associated with your stock.

Also, as you mentioned about standard deviation, I talked about risk only.