Comparing Bitcoin’s annual risk return to other assets

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Fidelity Investments is one of the world’s largest asset management companies, with $4.5 trillion in assets under management. Recently, Jurrien Timmer, global head of macro at Fidelity, released a risk-reward analysis of various assets, including Bitcoin.

According to Bitcoin Magazine, Timmer said that Bitcoin’s risk reward is “in another universe.” Report on X (Twitter).

Essentially, financial institutions analyze an asset’s risk and return based on annual volatility and annual returns. Annual rate of return is the average amount of money an investment generates each year over a specific period of time. Higher annual returns mean better long-term returns.

Annual volatility, on the other hand, measures an asset’s price fluctuations over a year. It represents investment risk. High volatility indicates greater price swings and therefore a greater potential for losses or profits.

Additionally, analysts often use standard deviation to assess volatility. A larger deviation indicates higher volatility and vice versa.

Bitcoin’s Annual Risk Return Compared to Other Assets

It is worth noting that Bitcoin’s risk-return is set at an annualized return of around 60%, with annualized volatility above 69 standard deviations. This is indeed the result of “another universe,” as Julien Timmer said.

In particular, Fidelity’s chart analyzes the results for a number of financial assets between 2020 and October 29, 2023, along two axes:

– The X (horizontal) axis represents risk, illustrating annual fluctuations via standard deviation over time.

– The Y-axis (vertical) represents rewards, measured as annual returns on each given asset.

Bitcoin

Risk and reward: 2020-2023, weekly data | Source: Fidelity Investments

Interestingly, the second best performing asset is SPX on the stock market, with returns between 16-26% and risk between 18 and 24 standard deviations. China is the second most risky, with annual fluctuations between 25 and 28, and negative returns accumulated over the three-year period.

You can check coin prices here.

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