Fidelity Investments is one of the largest asset managers in the world, with $4.5 trillion in assets under management. Recently, Jurrien Timmer, Fidelity’s Director of Global Macro, published a risk-reward analysis on different assets, including Bitcoin (BTC).
Essentially, financial institutions analyze risk and reward on financial assets crossing annualized volatility to annualized return. Annualized return is the average amount an investment generates each year over a given period. Higher annual returns imply better long-term profitability.
On the other hand, annualized volatility measures the price fluctuations of an asset over a year. It acts as a proxy for investment risk. High volatility signifies larger price swings and hence more potential for loss or gain.
Moreover, analysts often evaluate volatility using standard deviations. A more significant deviation shows higher volatility and vice versa.
What is the annualized risk-reward for Bitcoin vs. other assets?
Notably, Bitcoin’s risk-reward is set at around a 60% annualized return over a 69 standard deviation for the annualized volatility. This is indeed a result of “a different universe,” as stated by Jurrien Timmer.
Particularly, Fidelity’s chart analyses results from 2020 to October 29, 2023, from multiple financial assets in two axes:
- The X-axis (horizontal) represents the risk, illustrated by the annualized volatility through the standard deviation in the period.
- The Y-axis (vertical) represents the reward, measured by the annualized return of each given asset.
Interestingly, the second best-performing asset is the SPX on the stock market, with a return going from 16-26% and a risk between 18 to 24 standard deviations. China has had the second-higher risk with an annualized volatility between 25 to 28 while accruing negative returns in the 3-year period.