I occassionally find arbitrage opportunities on money lines. It's easy to calculate a return on investment in these cases because there is a certain outcome.
For example:
Team A: -120
Team B: +130
Bet $100 on Team A and $79.71 on Team B. No matter which team wins, there's a profit of $3.62.
Return on investment = 3.62 / (100 + 79.71) = 2%
However, I've also created a system that lets me know if I have a statistically exploitable pair of spread bets.
For example (NBA game):
Team A: -105 +4
Team B: -105 -3
Based on historical data, the odds of a push on 3 and 4 are 3.9% and 3.5% respectively. So, there's a 7.4% chance of a push and a (1 - .074) chance of no push. On a $105 bet on both sides, I win $100 7.4% of the time and lose $5 92.6% of the time.
Expected value = (100 * .074) + (-5 * .926) = $2.77
Expected return on investment = 2.77 / (105 + 105) = 1.3%
Here's the problem. Due to my resources not being unlimited, there are times where I have to decide between different opportunities. For example, do I invest in a sure thing with a return of 1% or in a statistically profitable opportunity that returns 2% (knowing that I'll lose money more often than not)? Ideally, I could use some type of formula to calculate a risk adjusted return. I've looked at the different measures in the stock market but haven't found anything that translates well.
Any ideas are appreciated.
For example:
Team A: -120
Team B: +130
Bet $100 on Team A and $79.71 on Team B. No matter which team wins, there's a profit of $3.62.
Return on investment = 3.62 / (100 + 79.71) = 2%
However, I've also created a system that lets me know if I have a statistically exploitable pair of spread bets.
For example (NBA game):
Team A: -105 +4
Team B: -105 -3
Based on historical data, the odds of a push on 3 and 4 are 3.9% and 3.5% respectively. So, there's a 7.4% chance of a push and a (1 - .074) chance of no push. On a $105 bet on both sides, I win $100 7.4% of the time and lose $5 92.6% of the time.
Expected value = (100 * .074) + (-5 * .926) = $2.77
Expected return on investment = 2.77 / (105 + 105) = 1.3%
Here's the problem. Due to my resources not being unlimited, there are times where I have to decide between different opportunities. For example, do I invest in a sure thing with a return of 1% or in a statistically profitable opportunity that returns 2% (knowing that I'll lose money more often than not)? Ideally, I could use some type of formula to calculate a risk adjusted return. I've looked at the different measures in the stock market but haven't found anything that translates well.
Any ideas are appreciated.