What is applied ergodicity in the context of finance and investment?


I’ve heard about the concept in mathematics, but I came across this company alleging they have an application for it in finance and investment


I’m confused and skeptical. Thanks in advance!

In: 0

I’m not sure about the link you posted – that looks more like a scam than anything.

But the usage I’ve seen of this term are exactly the same as meant by mathematical sense. As in it characterizes stochastic processes where the time average converges to the ensemble average; or put another way, a collection of random samples of the process exhibits the statistical properties of the whole process.

It’s not necessarily an application, but rather a goal to strive for in financial risk management and a lesson to keep in mind when considering investment opportunities. Recognizing Ergodic vs Non-Ergodic investments can mean a strategy that is expected to work long term vs one that is expected to fail long term.

So what exactly does ergodic process mean? You may have an expected return X in one trade using a particular strategy; in an ergodic regime, you’d have expected return X in a hundred trades. In a non ergodic regime you may end up with negative 100% return in a hundred trades. To illustrate how this happens, imagine you have 9/10 chance to double your money while 1/10 chance to lose all your money. Your expected return is 80% for one trade. But if you keep playing you’ll eventually lose all your money.