Reference
Investing Glossary
Plain-English definitions for the metrics, risk measures, and portfolio concepts behind GNG Research. Each entry explains what a term means, why it matters, and how it shows up in our tools, from the Sharpe Ratio and CVaR to the efficient frontier.
GNG Research Metrics
Fair Value (Blended)
A combined fair-value estimate that weights several methods (Forward P/E, P/CFO, DCF, dividend yield, etc.) into a single target price.
GNG Strong Buy
The top rating tier from GNG's Vulcan engine, given to stocks with the highest combined factor scores.
GNG Universe
The set of about 4,591 tickers GNG actively tracks with daily prices, fundamentals, and ratings.
Plaid Holding
A position imported from a Plaid-linked brokerage account, used as an input source for the optimizer.
Methodology
Ledoit-Wolf Shrinkage
A method that smooths a noisy covariance matrix toward a structured target, producing more reliable optimizer inputs.
Marchenko-Pastur Filter
A random-matrix-theory tool that filters out covariance matrix eigenvalues which look like statistical noise.
Peer Shrinkage
A GNG technique that pulls a stock's expected return toward the average of its peer group when its own history is short or noisy.
Posterior Sampling
A Bayesian technique that draws many possible return scenarios from a posterior distribution, used in Black-Litterman and probability tabs.
Vulcan Quant Engine
GNG's in-house multi-factor model that scores stocks on quality, value, momentum, and yield to drive ratings and weights.
Optimizer & Performance
Binding Constraint
A constraint that limited your portfolio: it would have been different without this rule.
Black-Litterman Model
A method that blends market-implied returns with your own opinions about which assets will do better, producing more intuitive portfolios than raw mean-variance.
Calmar Ratio
Annual return divided by maximum drawdown, useful when peak-to-trough loss matters more than volatility.
Conditional Drawdown-at-Risk (CDaR)
The average of the worst drawdowns in a backtest, used to optimize against deep peak-to-trough losses.
Conditional Value-at-Risk (CVaR)
The average loss in the worst tail of outcomes, used as a risk objective that focuses on bad scenarios rather than overall volatility.
Dividend Yield
Annual dividend income as a percent of price. Income relative to what you paid.
Entropic Value-at-Risk (EVaR)
A coherent tail risk measure that gives a tighter upper bound on extreme losses than CVaR.
Equal Risk Contribution (ERC)
A specific risk parity scheme where every individual asset contributes the same risk to the total portfolio.
Expected Return
Estimated annual return based on historical data, not a guarantee.
Hierarchical Equal Risk Contribution (HERC)
An evolution of HRP that targets equal risk contribution from each cluster of similar assets.
Hierarchical Risk Parity (HRP)
A clustering-based allocation method that groups similar assets together and spreads risk between groups, avoiding the matrix instability of mean-variance.
Maximum Diversification
An optimization that maximizes the ratio of weighted average volatility to portfolio volatility, pushing capital toward less correlated assets.
Mean-Variance Optimization
A method that picks portfolio weights to maximize expected return for a chosen risk level, balancing reward against volatility.
Nested Clustered Optimization (NCO)
A two-step optimizer that first clusters assets, optimizes inside each cluster, then optimizes across clusters using cluster-level statistics.
Return Contribution
How much each factor or holding adds to overall portfolio return.
Risk Parity
An approach that gives every asset the same contribution to total portfolio risk, instead of the same dollar weight.
Sortino Ratio
A reward-for-risk measure that only penalizes downside volatility, not upside swings.
Target Return
An optimization mode that finds the lowest-risk portfolio achieving at least a chosen return target.
Target Risk
An optimization mode that finds the highest-return portfolio whose volatility is at most a chosen risk budget.
Risk Measures
Beta
A measure of how strongly a portfolio moves with the broader market, where 1 means in line, above 1 means more volatile, below 1 means more defensive.
Conditional Value-at-Risk (95%)
The average loss in the worst 5% of outcomes, capturing how bad things look beyond the VaR cutoff.
Conditional VaR (CVaR)
The average loss in the worst tail beyond VaR. Captures how bad the bad days really are.
Correlation
A number between -1 and 1 showing how two assets move together, where 1 is perfectly synced and -1 is perfectly opposite.
Maximum Drawdown
The largest peak-to-trough percentage loss over a period, showing the worst pain a portfolio went through.
Risk Contribution
How much each factor or holding adds to overall portfolio risk.
Sharpe Ratio
A reward-for-risk measure showing how much excess return you earned per unit of total volatility.
Sharpe Ratio
Risk-adjusted return: how much extra return you get per unit of risk. Higher is better.
Sortino Ratio
Like Sharpe, but only counts downside volatility against you, not upward moves.
Stress Test
Estimating how your portfolio would perform in a known historical crisis or a hypothetical shock.
Ulcer Index
A drawdown-aware risk measure that captures both the depth and duration of underwater periods.
Value-at-Risk (95%)
The dollar or percentage loss that should only be exceeded 5% of the time over a given horizon.
Value-at-Risk (VaR)
The expected loss at a given confidence level over a given horizon.
Volatility
How much returns swing up and down, usually expressed as annualized standard deviation.
Factor Investing
Factor Exposure
How tilted your portfolio is toward a market factor like value, momentum, or quality.
Growth Factor
A style tilt toward companies with rapidly expanding revenue and earnings, often trading at higher multiples.
Low Volatility Factor
A style tilt toward less volatile stocks, which historically delivered similar returns to high-vol peers with less risk.
Market Factor
Sensitivity to broad market moves (beta to a market proxy like SPY).
Momentum Factor
A style tilt that favors stocks that have outperformed recently, on the idea that winners keep winning over the medium term.
Momentum Factor
Tilt toward recent winners (last 12 months minus the most recent month).
Quality Factor
A style tilt toward profitable, stable, low-debt companies that have historically outperformed lower-quality peers risk-adjusted.
Quality Factor
Tilt toward firms with stable earnings, low leverage, high return on equity.
Size Factor
A style tilt that favors smaller companies, which over long horizons have averaged higher returns than larger ones.
Size Factor
Tilt toward small-cap vs large-cap stocks.
Value Factor
A style tilt that favors stocks trading cheaply versus their fundamentals, like low price to earnings or low price to book.
Value Factor
Tilt toward cheap stocks (low P/E, P/B) vs growth.
Yield Factor
A style tilt toward stocks with higher dividend yields, often used by income-seeking investors.
Portfolio Constraints
Efficient Frontier
The set of portfolios that offer the highest possible return for each level of risk.
Expected Return
The forecasted average return an asset is projected to produce, used as the optimizer input for upside.
Lookback Window
How many months or years of historical data the optimizer uses to estimate returns, volatilities, and correlations.
Risk-Free Rate
The yield on safe short-term government debt, used as the baseline return when computing Sharpe and similar ratios.
Sector Cap
A constraint capping how much weight any one sector can take in the portfolio.
Single-Name Cap
A constraint capping how much weight any one stock can take in the portfolio.
Turnover
How much of the portfolio changes between rebalances, expressed as the percentage of dollars bought or sold.
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