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Risk, Reward, Coin Flipping
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No matter how many coins we flip, the average will not change. We are on our way to constructing data that, when graphed, will form a bell curve. The mean of that curve is a 10% return. The best we can do by increasing the flips per bet is to reduce the standard deviation, which in turn will increase our resulting annualized return.
.I ran more numbers for more and more coins as follows;
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| Number of coins |
STD |
Annual Ret |
| 3 |
.123 |
1.094 |
| 4 |
.103 |
1.095 |
| 5 |
.091 |
1.096 |
| 6 |
.082 |
1.097 |
| 7 |
.076 |
1.097 |
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| At 8, the calculations become cumbersome as there are 256 possible outcomes. But I believe the point is proven, that diversifying among assets that are not highly correlated is a path toward reducing risk. |
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Along the way, I did continue to add to the data set, following a series known as Pascal's Triangle. I then graphed those numbers with some pleasant results as shown.
Until Next Month
JOE |
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