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The Parrondo’s Paradox Usually Doesn’t Work with Asset Management and a Portfolio of Stocks

  • By admin
  • April 20, 2016

In the world of business, situations change dramatically. In fact so incredibly fast is the business scenario that algorithms which identify stock arbitrage opportunities tend to cancel them out even before they have practically occurred!

To stay up-to-date in such a highly competitive world requires outsource equity research India, some dramatic and ridiculously good moves that help to keep you ahead of the competition in the stock market.

A sibling product of such fancy techniques is something known as the Parrondo’s Paradox. Named after a physicist from Spain, Juan Parrondo, this technique caused the world of mathematics to buzz aflutter. According to this theory proposed by Juan, two losing strategies could actually be combined to give rise to a winning strategy.

Now how does this work?

Think of two situations: Scenario 1 and Scenario 2. Now if scenario one occurs independently, it is a losing situation for the person. If scenario two occurs independently, it also causes the individual to lose it all. However, the two strategies combined in some order or sequence could give rise to a win-win situation.

Like for another instance consider situation A and situation B

Situation A: Mr X plays a certain game and each time he plays he loses a dollar.

Situation B: If the cash in hand with Mr X is even, he wins $3, else he loses $5.

If situation A occurs independently, it would eventually wipe out all the cash in hand that X possesses.

If Situation B occurs repeatedly, then at some point, exhaustion of resources occur, so the man would be left with nothing and on the other hand could even accrue some debt.

But if we place Situation A and Situation B in some possible, plausible strategic sequence, such as BABABABA… and so on and so forth, and if it was understood that the man began with $100, at the end of the strategic combination period, he would actually tend to gain and if the chain goes on infinitely, he will continue winning infinitely. Such is Parrondo’s Paradox.


Now companies believe that they can use this very technique when it comes to the management of assets and stocks and bonds but it isn’t really so. For the paradox to occur effectively, two independent games have to be linked in such a manner that their independency is disrupted. This scenario is next to impossible to create with common stocks that you purchase.

Furthermore, if by hook or crook it can be designated that you have managed to create a winning situation for yourself by combining a multitude of losing, low valued, negative profit margin stocks, whose value decreases surreptitiously, then at one point of time, all you would be left with are worthless assets. The situation does have to balance out right? Furthermore, there is the issue of depreciation to be considered.

Therefore if you are in need of strategies to manage your assets and with regards to the stocks and bonds you need to purchase or sell then carry out a thorough research using outsource financial research reports prepared by Market Quotient. Going for unreliable techniques is not recommended, for it is easier to make money using a good portfolio of stocks than those which are unreliable, have a high rate of depreciation and are essentially a losing proposition.

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