mean reversion

Definitions (2)

1. The theory that a given value will continue to return to an average value over time, despite fluctuations above and below the average value. This theory can be applied to any measurable value, including interest rates and the return on a certain investment.
2. A purchasing strategy based on the above theory, which assumes that prices will return to an average value. This strategy encourages purchasing underperforming securities, under the premise that the market will eventually rebound, and the value of the security will increase.

Use mean reversion in a sentence

The mean reversion rate was important for us to look at and we all wondered what was going to happen with it.

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We had faith in the mean reversion idea that our business partner had suggested, as he mentioned excessive variance was currently occurring.

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They looked at the performance of the stock over five years and they realized that the mean reversion of the stock had a rather steady track record.

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