Investing glossary
Most of these terms have a textbook definition that is technically correct and practically useless. Each page here does the same four things instead: defines the term in a sentence, explains how it is actually measured, shows what a high or low reading means with a worked example, and names the mistake people reliably make with it.
If you want the current reading rather than the vocabulary, the market regime today page publishes the live cycle phase for all seven markets CORVIX covers, free and without an account.
Reading the market
Terms for describing the backdrop: where the economy sits, what growth and inflation are doing, and how much stress is visible right now.
A market regime is the prevailing backdrop that decides which assets tend to work and which tend to struggle. It is described by where the economy sits in its business cycle and by what growth and inflation are doing to each other at the same time.
The macro quad is a way of describing the economy using only two variables: whether growth is accelerating or decelerating, and whether inflation is rising or falling. Crossing those two answers gives four boxes, and each box has historically favoured different assets.
Correction risk is an estimate of how much stress is currently visible in markets, expressed as a probability. It is a description of present conditions rather than a forecast of what happens next.
The high yield spread is the extra yield investors demand to hold riskier corporate bonds instead of government bonds of similar maturity. It is compensation for the possibility that the borrower does not repay.
Judging an idea
Terms for deciding how much to commit to a view, and for holding a long-horizon theme without letting it become an untestable belief.
A conviction band is a label that summarises how strong the evidence behind an investment idea currently is. Rather than publishing a bare number, the score is placed into a named band so that the strength of the case is legible at a glance.
A megatrend is a structural shift expected to play out over many years, independent of the business cycle. Unlike a tactical position, the case rests on something changing in the real economy rather than on price behaviour.
Measuring risk and results
Terms for judging whether a result was worth the risk taken to get it, and whether the test that produced it was honest.
A drawdown is the fall from a portfolio's previous peak to its subsequent low, expressed as a percentage. Maximum drawdown is the largest such fall over a period, and it measures the worst experience an investor holding throughout would have lived through.
The Sharpe ratio measures how much excess return a portfolio earned for each unit of volatility it took on. It is return above the risk free rate, divided by the standard deviation of returns.
Tracking error measures how much a portfolio's returns deviate from its benchmark. It is the standard deviation of the difference between the two, and it quantifies how much active risk is being taken.
A point-in-time backtest simulates a strategy using only the information that was actually available on each historical date. It is the discipline of not letting the test know things the investor could not have known.