Volatility is our friend!

Hi everyone! I'm exited to show this.

I wanted to compare the volatility of different kinds of assets and how DCA'ing would help to face volatility.

In order to do this I did the following simulation as an experiment:

I compared 3 asset classes: A, B, C. Going from 0%, 1% and 8% volatility per period. This would mimic the volatility of USD, Gold and BTC on the weekly chart. To normalizate I made it so that all three assets had the same expected value at the end (which depends on the winning/loosing weeks and average percentage gains of each good/bad week)

I assumed someone DCA'ed into those three goods and saw what happens. Here are the results:

In total units you got 100 for the USD (1 a week, 100 weeks or two years). For Gold you got 101.13 units. So 1.13% more! This is because when gold was cheaper you bought more gold with the same amount of dollars (and less when it was more expensive) but proportionally you buy a bigger percentage when it's cheaper (if something gains a 50% in price you buy 33% less of it but if it loses 50% of price you buy double of it). Finally Btc would have gotten you 111.61 units so 11.61% more than traditional assets! That's a return just from DCA'ing in volatility!

Note that this takes into account all assets end with the same value of 1. In my experiment actually the USD final value was 100, the stocks were 102.15 and the BTC was 121.32 but this is because we had one more week or gains rather than loses!

If you are intrested I can do a follow up post where I do this again 100 times using a loop!