Mean Reversion
Mean reversion is an investment strategy that assumes that prices and returns eventually move back towards the mean or average of the entire data set. This strategy is based on the idea that prices and returns that are far from the average will eventually move back towards the average. This strategy is often used in technical analysis and is based on the assumption that prices and returns tend to move in cycles. The mean reversion strategy is used by investors to identify potential buying and selling opportunities in the market.
History of Mean Reversion
The concept of mean reversion has been around for centuries. It was first introduced by the French mathematician Pierre-Simon Laplace in the 18th century. Laplace used the concept of mean reversion to explain the behavior of prices in the stock market. Since then, the concept has been used by many investors and traders to identify potential buying and selling opportunities in the market.
The concept of mean reversion has also been used in economics. Economists have used the concept to explain the behavior of prices in the economy. For example, economists have used the concept to explain why prices tend to move back towards the average after a period of extreme volatility.
Comparison Table
| Strategy | Mean Reversion |
|---|---|
| Time Frame | Short-term |
| Risk Level | Low |
| Return Potential | Moderate |
Summary
Mean reversion is an investment strategy that assumes that prices and returns eventually move back towards the average of the entire data set. This strategy is based on the idea that prices and returns that are far from the average will eventually move back towards the average. This strategy is often used in technical analysis and is based on the assumption that prices and returns tend to move in cycles. For more information about this term, you can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Technical Analysis
- Trend Following
- Momentum Investing
- Contrarian Investing
- Value Investing
- Growth Investing
- Fundamental Analysis
- Chart Patterns
- Price Action Trading
- Market Timing
