Tail away risk: left, or right?
In finance and investing, tail risk refers to the danger (or opportunity) of extreme, rare events in the return distribution of an asset, portfolio, or market—events lying far beyond what a standard bell curve (normal distribution) predicts, usually more than three standard deviations from the mean. The distribution is plotted with returns on the x-axis: negative returns (losses) to the left, positive returns (gains) to the right.
- Left tail = extreme negative returns (big losses, crashes, drawdowns). This is the classic "tail risk" most investors fear and try to hedge against, often called left-tail risk or downside tail risk. It can wipe out capital permanently.
- Right tail = extreme positive returns (big gains, booms, melt-ups). This is upside tail risk or positive tail events—generally welcome, though some strategies (short positions, certain options) can suffer from it.
When people say "tail risk" without specifying, they almost always mean left-tail risk—the catastrophic downside everyone wants to protect against. Right-tail events are the lottery-ticket wins investors usually want to keep or capture.
"Tail away risk" isn't a standard fixed phrase, but in context it often means reducing or eliminating tail exposure—typically taking tail risk away by hedging, which almost always targets the left tail (minimizing severe losses) while ideally preserving as much of the right tail (upside potential) as possible.
Strategies like tail-risk hedging (put options, VIX calls, trend-following) aim to cut left-tail exposure without fully capping right-tail upside. Pure diversification sometimes trims both tails symmetrically, which can limit big winners.
So, to answer directly: tail risk that matters most—and the one people usually "tail away" or hedge—is the left (downside). The right is the one you generally don't want to tail away.
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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.