Measure risk & reward with Peer to Peer Lending


For investors interested in investing in peer to peer (p2p) lending, there are many questions to answer and pieces of information to gather to make sure you know what you’re doing. While NSR Invest offers Fully-Managed accounts to make investing in p2p seamless, some investors want more granular controls over their investing – and we aim to provide all the tools you need to be successful through the NSR Platform.


In the coming weeks, we will also be releasing new tools that can help you better assess risk/reward in your custom investment strategies. In this post, we will walk through how to effectively use one of the new tools to enhance your investment strategy.


Efficient Frontier Charting


A new addition to the Strategy Builder is Efficient Frontier charting. With this upcoming feature, you can click the standard deviation icon in any result breakdown view to see efficient frontier charting.


This powerful charting allows you to measure four key components to building a robust strategy, including:

  1. The volume of loans within each category or range of values (indicated by the size of the circle)
  2. The standard deviation of returns (indicated on the x-axis of the chart)
  3. The ROI or return on investment (indicated on the y-axis of the chart)
  4. The loss rate (indicated by the color of the circle – green is better, red is worse)


How to interpret the Efficient Frontier?


With this type of chart, the best result is a green circle with a large radius that is towards the upper left-hand corner of the graph. This positioning means that there are a significant group of loans with a higher return, and lower risk and standard deviation of returns.


The standard deviation of returns is important because it tells us how spread the returns are within a specific cohort of loans. In the example screenshot posted above, we can see that there are a relatively small number of F-grade Lending Club loans issued with a moderately high amount of loss, but the returns for that set of loans is also unfavorably high at about four standard deviations, compared to E loans which are only at 1.5.


Higher standard deviation means more volatility in returns. Therefore, if I were to create a filter, I might exclude F-grade loans for this reason. One of the ways the efficient frontier chart becomes more powerful is by dynamic adjustment – meaning, as you adjust your Strategy criteria, the chart will adjust as well.


Are you interested in gaining early access to efficient frontier charting and other beta features? Message us by clicking on the live help link located in the lower left-hand corner of your screen.

Zach Richheimer
Zach is responsible for product management at NSR Invest and has been investing in peer-to-peer loans since early 2009. He is an entrepreneur with several startups under his belt, and extensive experience with equities and marketplace lending. Through his experience, he brings unique, data-driven insight to our clients to help them better understand how their p2p investments fit into their broader portfolio.