Market Discussions

I always hear this risk versus reward, usaully related to security space instead of investments. I'd gotten to the point that of mentally comparing optimal ROI with actual and then I stumbled on Sparkes work. I know its decades old but I never traded bonds or derivatives

Sharpes Ratio

I'm often accused of being delusional but is this a way to quantify the balance of various game activities in different spaces?

I'm not sure I'm calculating it correctly either. the formula per investopedia is:

(expected return-risk free return)/standard deviation

Standard deviation of what? past real ROIs of a certain activity?

For instance, level 4 missioning 40m/hr 4 hrs a day 20 hours a month is 3.2 bill-.2bill for ammo. Say I invested 500m in my BS. ROI=3b/.5b or 600%? Is That risk free? I think

So I go into ninja territory and every few months I lose a ship. and it becomes a part of that months expenses and drops me to 500%. My average return after a few months is 566%-600%/57 Standard deviation calculator data points 600,600,500 = average 566 and standard deviation of 57.

I get a sharpes of.6 for high sec.

All my numbers are guesstimates off of memory but I ran some null numbers and sharpes was over 1 actually 1.25 to 1.79

I don't have any real plex running in low sec but I ran some some estimates and I can't get a positive sharpes number because my expenses get too high from projected losses. I bumped up the income up to 70 and its still negative. Next step is to get some faction warfare plex numbers and see if I can get + numbers for that activity but am I even doing these calculations correctly?

I'm sorry if I didn't explain this well, kinda hard to do with a subject new to me.

Thanks, You using tbills throws off my risk fee investment returns a lot. I suppose Eve inflation, Just buy and hold for a basket would have to be a risk free return for now.

My intuition tells me that anybody in this game that says return has to be proportional to risk has an incomplete picture. My numbers tell me low sec is horribly broken when you compare it to the rest of the Universe. They suggest faction warfare instead of null or highsec business models.

Fun? I guess I like numbers :)

A very interesting approach, but I think the topic needs to be expanded, if it is to warrant any discussion..

The problem I see atm is that players keep accepting that ccp tends to turn to many things ingame on its head compared to the real world. This keep causing some bad effects, that persist mainly because to few are pointing out the core problem..

Back when I was a very yong lad, and I was at a camp excursion with the my church for our christenings, the priest arranged a rather inspirering roleplay session.

He divided all the items needed to build a layered cake into 3 groups as i recall.

Group 1 got all the raw materials, the cream, the fruit etc. The priest called this the third world. (Developing world)

Group 2 got all the machinery, the electrical appliances etc. He called this the western world.

Group 3 got all the utensils and the artsy parts,and he explained this as the middle ground nation states.

We had to roleplay and trade with each other in order to get the 1 cake per group that was available.

The result was that my group had 2 of the 3 cakes and the third cake could not be made, because the two other groups would not agree.

My point is that EVE should be balanced in similar ways to mimic what we as humans are used to seeing and hearing. The divide between high sec an low sec, between empire and null should reflect these natural economic mechanics.

Roids should not pop, they should be "territorial" and limitations should be on effectiveness of the manhours invested in working them.

Same with production it should be more pvp and npc facilitation needs to be nerfed and start using actual floating prices.

Player facilities and services need to be public in EVERY way. So renting out POS slots, and player billings, and effective use of player to player standing for embargoes and boycotts.

Null sec got wild west status and got opertunities, space and available resources, but money, network and all the things Adam Smith belongs in empire. The exception being CVA trying to civilize their space.

The problem with things like risk versus reward and to easy isk sinks stem from these game flaws. If ccp just want a skinner box, like wow, that is all fine and makes sense, but if they want a true sandbox they have to fix these balances better. In fact I think that is a lot of what they are about to do with and post inferno patch.

We have already seen a lot of small hints towards this trend, now I am hopeful that a lot more will follow.
(On that note, the station containers need to be solved the same way as shuttles, get the reprocess back on them and seed blueprints, preferably linking its build to PI in order for more latteral integration.)

So? and standard deviation is a bell curve distribution. Risk is not related to return in a straightline fashion as everybody suggests but is related to a bell curve. Its a probability related term, more related to the median but including the extremes.

bell curves are theoretical, though actual distribution would exhibit curvelike characteristics. A sharpe ratio could be used for comparison since it is using similar metrics but wouldn't be a reliable indication of future performances. It turns the light on but barely shows me the way.

Faction warfare FTW this expansion?

Right Kara, You have to get honest with your revenue and when you do you see exactly what your talking about. That your incomes are not steady.

Thanks for correcting me on the investment because my highsec investments are now much higher. The number I quoted was actually a null ratting ishtar and that was just ballpark. It was probably less by the time I was done tuning it. In high sec missions I run a a marauder and a mach that's more in line with your numbers.

If I get honest, I have made between 5 million and 70 on high sec missions. A string of these become your data-set. You should have a much larger data-set than i used but say I look at my wallet do some quick estimates and see that 5 and that 70 and a bunch of 20-28 and a few high thirties. If I plug that into that calculator I can get my average and some deviation numbers. My data actually have a pretty high deviation. There are Three elements to my ROI calculation, Revenue,expense and investment.

The Sharpe equation tells us something we don't talk about and adds a fourth element. We are also running a risk from one day to the next that our income will DEVIATE from the median. Once I acknowledge this, I of course start to look for those things that bring good days and bad days. As I reduce my deviation. I'm actually managing risk. as I manage and minimize my risk my sharp ratio goes up. In this instance we are also making more money.

Its interesting in null, running anomalies, the ticks are pretty darn steady compared to high sec. Not only are they higher, the deviation is much less. My time in null is limited, I never lost a ratting ship. My income was steady, my investment was low expenses were nill, My sharpe ratio was high.

I expected low sec numbers to fall in between but they do not. but if I start looking at ship turnovers for stealth bombers it starts going up. Common sense says not to fly bling in low. THe Sharpe number confirms it. THe ROI model is what is helping me see that a low investment can combine with a high deviation to bring up my Sharpes. Just through hearsay I know that stealth bombers are used in the low sec faction warfare changes.

It seems it might be time to collect some data and try to bring up that Sharpes.

The luck of the draw on system travel and some time swapping hardeners really raises your deviation numbers. I recall some corp mining ops that would have shown some largish deviation numbers.

That maelstrom, I remember those lock times. And salvage and loot introduced deviation as well.

mfg of t2 versus t1? Off the top of my head t2 had less deviation even with random invention because copy time was the bottleneck for me.. Wish I would have worked out ROI's

Nice find. I ran numbers once and the resullt was to small since our rate of returns are :) astronomical. It really looks like the idea I was looking for though.

Risk free rate of return can be arbitrary by my understanding though your of course right that it is the Tbill rate in the US. In eve we could pick an arbitrary measure like inflation. Maybe plex inflation rate crosses my mind if I can't find the mistakes in my preliminary calculation.

Both ways put deviation in the equation. I've seen several ways to calculate deviation also. that we haven't looked at either but we are much closer.

Can't help wondering about volatility across different market segments and price points.