%20copy.png){kind=logo}
Convex
Portfolios
Convex portfolios perform well on a relative basis; any portfolio's performance must be compared against something else to give it context. Convexity results in a positive relative comparison.
%20copy.png)
Convex portfolios are designed to perform well; to achieve more return per unit of risk taken.
What is convexity?
In investing terminology, convexity is the curvature of a line between two prices.
​
In the graph, you can see 'Price 1' on the y-axis, and 'Price 2' on the x-axis.
​
The curved line illustrates a convex relationship between the two prices.
What is a convex relationship between prices?
Think of this as a performance path with exposure to positive returns and reduced exposure to negative returns.
​
The convex performance path is accomplished through the combination of the individual price behaviors in relation to each other. When the two prices on the graph are increasing or decreasing the amount that they increase or decrease by is not the same. This is what gives the line its curve, or convexity.
What does convex performance look like?
Think of this as a performance path with exposure to positive returns and reduced exposure to negative returns.
​
The convex performance path is accomplished through the combination of the individual price behaviors in relation to each other. When the two prices on the graph are increasing or decreasing the amount that they increase or decrease by is not the same. This is what gives the line its curve, or convexity.
What is real-world convex performance like?
If the stock market drops in value, this will affect the ‘Convex Portfolio Performance' line, and it will decrease. But, the rate by which it decreases is also decreasing. This is why the ‘Convex Portfolio Performance’ line moves away from and above the ‘Market Performance’ line. So, we can see that convexity provides protection when the market goes into negative territory.​
​
In addition to the value of market drawdown minimization, investors are always interested in the upside of investing and for this reason, convex portfolios also have upside exposure. As a result, when the ‘Market Performance’ line goes up so does the ‘Convex Portfolio Performance’ line.
Therefore, the way to understand convex portfolio performance is that it is limited on the downside when the market drops, but also benefits from the upside when the market goes up.​​
Convex Portfolios
Performance Benefits
Convex portfolios generate more return per unit of risk taken, as well as have many other desirable performance characteristics.
Increase Return for Risk Taken
Return and risk are two key concepts in investment. An optimal balance between the two is tremendously beneficial.
Market Drawdown Minimization
It is always the right choice to minimize your maximum cost.
More Predictability & Less Volatility
A portfolio that navigates the ups and downs of markets.
Greater Capital Preservation
At the end of the list of any investor's goals is losing capital.
Whenever you're ready, we are happy to meet or do a call to learn about you and how we can help with your goals.
​
Please reach out or reserve your time on our calendar. We look forward to hearing from you.
Explore Our Services
Investors should conduct their own analysis prior to making any investment decisions. Diversification does not eliminate the risk of experiencing investment loss. Past performance is not a guarantee of future results. Investment process is subject to change.​ Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in a loss. ​​Investors should conduct their own analysis prior to making any investment decisions.