…The modern portfolio theory describes five main risk measures: alpha, beta, r-squared, standard deviation, and Sharpe ratio. Our research has shown that all five of these measures have significant drawbacks. At The Arora Report, we have developed our own proprietary risk measures that are more suited to today’s markets.
Those familiar with The Arora Report are familiar with the risk reward matrix shown below:
The risk reward matrix combines fundamental analysis, quantitative analysis, and technical analysis. There is heavy emphasis on sentiment and money flows. Moreover, the models at The Arora Report are adaptive, i.e., that is they automatically change based on market conditions. As the risk reward matrix shows, gold is now in the ‘˜Cut area’ and rapidly moving towards ‘˜Remove’.
The readers can readily see that the reward in gold is not proportional to the risk at this point. This risk reward matrix is only based on a short-term view. At The Arora Report we define ‘˜short-term’ as less than six months.
Following is the risk reward matrix from a very long-term view. At The Arora Report we define ‘˜very long-term’ as greater than three years.
The chart below shows proprietary sentiment indicator plotted over the price of GLD . Ideally we like to see sentiment curve significantly below the price level as it was at the end of June. The readers will readily notice that the sentiment as of the close of August 22 is way above the gold price.
The chart below shows how we interpret sentiment at The Arora Report.
Please do not extrapolate the charts and the risk reward matrix on gold to silver (SLV). Read more….
