Understanding skewness in the context of Hedonova

## **Introduction**

When assessing the risk profile of an investment fund, it is crucial to consider various risk metrics that provide valuable insights into potential downside. Skewness is one such metric that measures the asymmetry of returns distribution. In this blog post, we will explore the concept of skewness as a risk metric for Hedonova and its significance in evaluating the fund's risk profile.

## **Defining skewness**

Skewness is a statistical measure that quantifies the degree of asymmetry in the distribution of returns. It enables investors to assess the likelihood of extreme positive or negative returns. A positive skewness indicates a longer tail on the right side of the distribution, suggesting a higher potential for positive returns and fewer negative returns. Conversely, a negative skewness implies a longer tail on the left side, indicating a higher probability of negative returns.

## **Interpreting Hedonova's skewness**

Analyzing the skewness of a portfolio provides valuable insights into its risk profile. A positive skewness for Hedonova suggests that the fund's returns are skewed towards the positive side, indicating a greater potential for positive returns. It is important to note that positive skewness does not guarantee positive returns, but rather highlights the potential for outliers on the positive end of the return distribution.

Conversely, a portfolio exhibiting negative skewness indicates that the fund's returns are skewed towards the negative side, implying a higher likelihood of extreme negative returns. Risk-averse investors may exercise caution when considering funds with negative skewness, as they may be more susceptible to significant drawdowns or losses.

![Graph showing positive skewness in Hedonova's performance](img/hedonova-fund_-skewness.jpg)

Based on the provided bell curve above, Hedonova's performance demonstrates a positive skewness. The curve indicates that the majority of Hedonova's returns have been positive. Another method to identify positive and negative skewness is by examining the relationship between the mean and mode of the returns. In the case of Hedonova, with a mean of 0.15% and a mode of 0.05%, it can be inferred that the returns distribution is positively skewed.

## **Conclusion**

Skewness serves as a valuable risk metric for assessing the asymmetry of returns distribution in an investment fund. By evaluating the skewness of Hedonova, investors can gain insights into the fund's potential for extreme positive or negative returns. Hedonova's positive skewness indicates a greater potential for positive returns, making it a favourable choice for portfolio diversification.

Skewness is a vital risk metric that measures the asymmetry in the distribution of returns for an investment fund. A positive skewness indicates a higher potential for positive returns, while negative skewness suggests a greater likelihood of extreme negative returns. Hedonova's positive skewness signifies a higher potential for positive returns, making it an attractive option for portfolio diversification. Evaluating skewness helps investors gain insights into potential downside risks associated with an investment, aiding in informed decision-making and risk management.




Understanding skewness in the context of Hedonova

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