Portfolio Risk & Return

Monte Carlo Simulation

A way of exploring the range of futures a portfolio might have by running it through thousands of randomly generated markets. Each path draws a fresh sequence of random ups and downs consistent with the portfolio’s expected return and volatility, and follows $100 through to the end of the time horizon. Lined up from worst to best, the paths give a spread rather than a single guess: the median outcome is the middle path, the bull case is the 90th percentile (better than 9 paths in 10), and the bear case is the 10th percentile (worse than 9 paths in 10). The value is in the width of that spread — how far apart a good stretch and a poor one can land for the same portfolio. The catch: every path is built from the same two inputs, so the simulation can never be more realistic than they are, and it assumes the future will be shaped like the past window it measured.

Educational information, not investment advice. See it applied across the screener →