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Finance GlossaryMean Reversion
Mean Reversion
Definition of Mean Reversion
Mean Reversion is a market concept that suggests prices can approach back towards their historical average over time. When a stock trades far above or below its usual level, it is expected to gradually return to the mean.
Related Terms
Oversold
Oversold is a term that is used to denote that a security's price has dropped sharply, and the broader market sentiment indicates a high probability of rebound or price correction in the near term. It implies that the selling pressure is likely to be nearing exhaustion. Traders use indicators such as the Relative Strength Index (RSI) to detect oversold levels. When the RSI level is below 30, the particular security is oversold. An oversold condition implies that the price decline may be due for a pause or reversal, but it is not a sure sign of a price increase.
Basis Of Allotment
The basis of allotment is the criteria to allocate shares to investors, most commonly during IPOs. Criteria or basis for allotment lays out the following information:
The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:
The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:
- Share allocation ratio
- Bids
- Demand
- Final price
The basis of allotment can vary based on the type of investor in question. Bidders during an IPO for whom a different basis of allotment applies include:
- Retail Individual Investors (RII)
- Qualified Institutional Buyer (QIB)
- Non-Institutional Buyers (NIBs)
- High Net-worth Individuals (HNIs)
- Anchor Investors
Multi-Bagger
A multi-bagger refers to a stock that delivers returns multiple times higher than its original investment value. For example, a stock that grows five times from its purchase price is called a five-bagger. Investors often associate multi-baggers with strong business growth, long-term holding, and effective capital allocation.
New York Stock Exchange (NYSE)
The New York Stock Exchange (NYSE) is one of the world’s largest and oldest stock exchanges, located in New York City, USA. It provides a platform for buying and selling shares of publicly listed companies and is known for hosting many large, well-established global corporations.
MACD
MACD (Moving Average Convergence Divergence) is a technical indicator used to identify entry or exit signals when trading stocks, futures, options, and others. MACD consists of two lines as follows: MACD line Signal line The MACD line represents the difference between two exponential moving averages, while the signal line is a moving average of the MACD line.
Differential Pricing
Differential pricing is a strategy that involves setting different prices for the same product or service based on the type of customer or tming.
For example, a zoo ticket may cost Rs. 10 for domestic visitors and Rs. 100 for international visitors. Or, when buying a product gets costlier as and when the last date for the sale approaches.
That’s why differential pricing is also known as discriminatory pricing and variable pricing.
For example, a zoo ticket may cost Rs. 10 for domestic visitors and Rs. 100 for international visitors. Or, when buying a product gets costlier as and when the last date for the sale approaches.
That’s why differential pricing is also known as discriminatory pricing and variable pricing.
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