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Range
A range is a price interval, i.e., the difference between the highest and lowest price reached by security over a certain period of time. The range is shown on technical analysis graphs and is depicted as a candlestick or a bar depending on the type of graph.
Ranges are very useful tools for technical analysis in order to study the asset price movements and plan the trades to be made.
The breaking of a price range can indicate a breakout or a breakdown, showing a price moving above or below specific thresholds.
Very short and frequent ranges are used in day trading, whereas longer and more extensive ranges tend to be used in the long-term analysis. In trading, the range also helps determine the trade’s risk, with more cautious traders preferring assets with a low range.
Reaganomics
Reaganomics is the set of conservative economic and tax policies propounded by former U.S. president Ronald Reagan and his administration in the 1980s. It calls for cuts to both taxes for individuals and business and to government spending. The idea is that the additional cash in private hands will stimulate new hires and investments and incentivise people to work, thus trickling down to all segments of society and ultimately expanding the tax base. Reaganomics was prescribed as a solution to stagflation, which is an economic recession combined with inflation.
Rebalancing
Rebalancing is a strategy investors use to realign their portfolio’s asset allocation with their target allocation. In other words, they redistribute the relative weight of different categories of assets within a portfolio in order to maintain the originally intended proportions.
For example, you might aim to have 50% of your portfolio allocated to stocks and 50% to bonds. However, during a certain market cycle, the stock market booms while the bond’s performance is lukewarm. As a result, stocks’ proportion of the portfolio’s overall value will rise, giving you greater exposure to stocks. To rebalance your portfolio and regain the 50-50 split, you’ll need to sell some stocks and purchase some bonds.
Recession
A is recession a significant and sustained contraction of economic activity in a specific geographical area. There is no single standardized definition of a recession, but according to the National Bureau of Economic Research, an economic downturn must meet three criteria to be considered a recession: depth, diffusion, and duration.
Most economists do not consider a downturn a recession until it lasts for more than a few months. Key gauges of recessions include GDP decline, rising unemployment, and slumping retail sales and industrial production.
The opposite of a recession is an expansion, which is an economy’s habitual state. Meanwhile, a depression can be distinguished from a recession by its severity; for example, the Great Depression in the 1930s resulted in a nearly 30% drop in US GDP, while the Great Recession of 2007-2009 saw GDP fall by 4.3%.
Regression
Regression involves a series of statistical methods used to estimate relationships between variables. In particular, regression analysis uses statistical systems to calculate the relationship between one variable (dependent variable) and one or more reference variables (independent variables). This method is used in various disciplines, for example in the financial sector and in investments in order to study the relationships between variables.
There are various kinds of regression analysis. Non-linear models are used to study complex relationships between variables. Multiple simple linear regression methods are used to study linear and less complex relationships between variables.
For example, regression allows you to understand certain dynamics within the financial sectors, such as the raw materials market, by studying the relationship between prices and supplies.
Relative Strength Index (RSI)
The Relative Strength Index, or RSI, is a trading indicator, a tool used in technical analysis to study the price movement of an asset. Specifically, the RSI is a momentum indicator with which to measure the intensity of price fluctuations and analyse specific market conditions.
The RSI oscillator helps traders study bullish and bearish trends in asset prices to identify when security is overbought or oversold.
The Relative Strength Index allows you to analyse the change in prices and the speed at which this movement occurs, providing useful information for traders to study prices. The RSI is also useful for discovering false trends that can cause operational errors.
Renewable Resource
A renewable resource is a good that isn’t exhaustible in that it can be used without its natural reserves being diminished. This term is generally used when referring to renewable energy, such as solar, wind and hydroelectric power. They are resources that are naturally replaced and are always available, regardless of the amount used for human activities.
Renewable resources are the opposite of non-renewable resources, such as fossil fuel sources, including petrol, gas and coal, whose use involves a progressive decrease in available resources. The recent energy transition towards renewable energy is favouring green economy, a new sustainable development model that is financially backed by ESG (Environmental, Social and Governance) investing.
Residual income
Residual income is the earnings left over after subtracting the opportunity cost of the capital used to generate those earnings. The opportunity cost is the amount of money that could have been made with that capital from a different investment with equivalent risk. Company managers use residual income as a decision-making tool and an internal measure of performance.
In personal finance, residual income means disposable income. It is the money a person has after paying his or her interest payments and expenses. Lenders calculate a borrower’s residual income to decide whether to grant a loan.
Residual value
The meaning of the term residual value varies depending on context. When evaluating investments, residual value means the profits minus the cost of capital (or in other words, the actual return minus the expected return for an investment with that risk level). In the field of accounting, residual value is a synonym of salvage value, or the remaining worth of an asset after it has completed its useful life. Lastly, residual value is used in a leasing context to determine how much of an asset’s value would be left at the end of a lease based on how fast it is expected to depreciate. It is calculated as an input that helps set the amount of a lease’s periodic payments.
Retained earnings
Retained earnings are a company’s profits over time, minus any possible dividends paid to shareholders. The term “retained” refers to earnings that haven’t been divided amongst the shareholders but have stayed in the company’s reserves and used for various purposes.
Usually, retained earnings increase when a company has a growing turnover and is generating new profits, whereas they decrease when a company has a negative performance or pays high dividends. Retained earnings are important data as they show a company’s money supply, i.e. a company’s available liquidity with which it can carry out various types of investments. The total amount of retained earnings can be used to buy company shares on the market, carry out mergers and acquisitions of other companies, pay back loans, expand the business or increase the dividends paid to shareholders.
Retracement
Retracement is an essential tool in technical analysis. It can be used to identify the resistance and support zones of an asset's price. A retracement does not signal a broad trend but a temporary price movement that suddenly changes its direction or retreats.
It is considered a short-term price change, i.e., a secondary movement to the main trend.
Retracement should not be confused with trend reversal, as it involves initially changing direction and then returning to the original trend.
On its own, retracement is not a significant indicator, but it is necessary to put it in context and combine it with other readings obtained through various technical analysis tools. Retracement can provide confirmation of market movements; however, understanding this indicator is rather complex.
Return of capital
Return of capital means paying all or part an investor’s original money back to them. It is not to be confused with return on capital, which is the income made from an investment and is taxable as a gain. Return of capital is not considered income and is not a taxable event.
If an investor sells an asset for less than they bought it for, all the money received is a return of capital. If they sell it for more than they bought it for, the profit is considered a gain and is taxed.
Return on assets (ROA)
Return on assets (ROA) is a ratio comparing a company’s earnings (defined as net income) to its total assets. It shows how effectively a business uses its assets to make money, so if a company’s ROA improves over time, this means it is using its resources more efficiently to turn a profit.
This ratio, which is expressed as a percentage, varies widely between industries because some industries (like manufacturers) require major investments in assets to produce products or services, while others (like software developers) require very little. While investors may look at ROA as part of an evaluation process, it is more useful to managers than investors because it uses total assets instead of net assets, meaning it includes a company’s debts instead of just focusing on how well the company uses investments to generate income.
Return on equity (ROE)
Return on equity (ROE) is a ratio comparing a company’s earnings (expressed as net income) to its equity (its total assets minus its debts). It shows how effectively a business uses investments to make money, so if a company’s ROE improves over time, it means that it is using investor’s resources more efficiently to turn a profit.
While similar to return on assets (ROA), investors tend to favour ROE as a tool for evaluating investments because it focuses on the investment component alone rather than factoring in liabilities.
Return on invested capital (ROIC)
Return on invested capital (ROIC), also known simply as return on capital, is a ratio that shows investors the percentage they are earning on their investment. It can be compared directly to the cost of capital or weighted cost of capital to determine the health of a business model and whether it is outperforming other investment opportunities with equivalent risk.
ROIC is calculated by dividing Net Operating Income After Taxes (NOPAT) by the book value of invested capital. NOPAT adds interest expenses back in to net income, and subtracts any special, one-time losses or gains in order to provide the most precise picture of a company’s ongoing profitability.
Return on investment (ROI)
Return on investment (ROI) is a ratio that measures an investment’s profitability. It is calculated by subtracting the current value of an investment from its original cost and dividing the result by that original cost. It is usually expressed as a percentage. For example, if an investor buys $10,000 dollars of stocks and sells them for $12,000 a year later, his or her ROI is 20%.
ROI does not include a specific time frame in its equation, so it is important to use the same time period when comparing ROIs for different investments.
Return on total assets (ROTA)
Return on total assets (ROTA) is a ratio that measures how effectively a company uses its assets to make money. It is calculated by dividing Earnings Before Interest and Tax (EBIT) by total assets.
Some use ROTA interchangeably with the term ROA, but ROA is traditionally calculated using net income (which factors in taxes an interest), instead of EBIT. By using EBIT, ROTA zooms in on a business’s operating earnings and removes differences in taxation and indebtedness from the picture.
Revenue
Revenue refers to the income generated by business activity. Revenue is income created by the sale of assets and services. This income is known as operating revenue. There are also non-operating revenues, generated by activities not related to a company’s primary business operations. For example, proceeds from a lawsuit, royalties or interest on financial instruments are non-operating revenues.
To calculate revenue, you can use different calculations. In an income statement, revenue is the first item shown. By subtracting the company’s expenses from the revenue, you get the net profit. If the revenue exceeds the expenses, the company is operating at a loss during the accounting period, otherwise it has made a profit. For listed companies, the profit is also referred to as Earnings Per Share (EPS).
Reverse Stock Split
Reverse stock split is the division of the total shares of a listed company into a smaller number for the purpose of share consolidation. With this operation, shareholders can increase the number of shares they hold, a process that has a direct impact on the share price and not on the value of the entire company.
Reverse stock splits affect the capital structure of listed companies, as the merging of shares into a smaller number allows them to increase their unit value.
Normally, this operation is carried out when a company’s shares have lost a lot of value so that the stock can become competitive again. However, a reverse stock split is often not a positive sign as it worsens the perception of the company among investors.
Right
A right offer (issue) is the possibility for shareholders to exercise their right to purchase additional shares, depending on their ownership share. It is a type of option that grants share owners the right (but not the obligation) to buy additional shares in the company at a discounted rate to the market price.
Generally, the right to purchase other shares on favourable terms must take place within a specific period, during which the shareholder may exercise their right and purchase the shares at a previously agreed price.
These are usually new shares in the company, which can be bought preferentially by shareholders at a discount in order to increase their share in the listed company.
Risk assessment
In the field of investing, a risk assessment is an evaluation of the financial hazards associated with a specific investment opportunity. The exercise helps investors make decisions about what opportunities they should take. It also helps them take precautions designed to mitigate losses.
A risk assessment presents the potential of an investment or trade to earn or lose money for a trader or investor. This risk profile is then used to set a rate of return for an investment. Technical tools for assessing risk include the concepts of efficient frontier, value at risk, standard deviation, and the Sharpe ratio, as well as the capital asset pricing model.
Risk management
Risk management is an activity aimed at managing risks through a number of risk identification, measurement, assessment and treatment processes. In the financial sector, risk management refers to managing investment risks.
In finance, risk management begins with the identification of the risks linked to an investment, followed by the analysis of these risks to determine their type and level. Following this, the risks are either accepted or mitigated, depending on the investor’s predetermined objectives and risk appetite. This is a key feature of any investment. Indeed, understanding risks, along with yield potential, helps investors to understand which investments to make.