Question

For this discussion, we will consider the impact of variance of data sets and predictability. This module we talked about the various tools investors and managers employ to measure market risk.

First Post
Please address the following:

Describe the significance of applying statistical tools to measure risk. Can investors or financial managers confidently forecast performance without the application of statistical tools? Why or why not?

Answer 1

applying statistical tools while analysing the performance of a company is very crucial since more interpretation of data analysis gives less error; more reliability i.e. in technical language less coefficient of variation. without using statistical tools decisions can also be taken but only few factors can only be considered and more number of years data cannot be done easily.

for example technical analysis which is used for short term trading and it consists of various tools one among its tools is moving average. its average of the security over defined number of time periods which shows the direction of stock even for 200days also just by selecting the tool which is expected to be a very difficult task to predict the movement of the stock if these type of tools not used.

drawback:- it predicts the past prices and statistical tools wont take future into consideration which can be done only by a human brain. in short for predicting the past using statistical tools helps however future has to be projected only by fund manager or investor.