Tail Risk
Categories: Metrics
Start with an investment portfolio of, say, 40 names. In theory, over time they'll look like a Normal Distribution, as some will move a skosh to the right, some will move a skosh to the left, i.e. a sigma. The fat middle of that portfolio (ordered by expected volatility and/or returns) is the body, not the tail.
For the tail, think: that 1% position you made in the portfolio 20+ years ago in Amazon at its IPO. The "risk" here was that the 1% position did so amazingly well that it went from being only a 1% position to being like a 70% position, as AMZN sooooo outperformed the rest of the portfolio it became a massive position for the manager.
The tail risk here innures to the outlier the one-in-a-million, the black swan, the Michael Phelps, the lottery ticket winner. Risk goes both ways.
