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Articles tagged with: SP500

24 February 2016

Increasing US Equity Market Exposure to Oil

For many equity markets so far this year, one of the single biggest drivers of performance has been the sharp declines in the price of crude oil as well as the sharp increase in oil volatility. With oil moves in excess of 5% now a regular occurrence, you'd be forgiven for suspecting that nearly every passing dramatic high or low open, for the US Equity market at least, has been dictated by whether or not oil has crashed below or recovered above the now all-important $30 level.

The chart below demonstrates that any such suspicion is entirely well-founded.

The chart shows a clear up-trend in US equity market correlation to WTI crude. A very clear conclusion to draw from this from both a portfolio and a risk management perspective is the that the importance of oil prices as an equity risk factor, at least for now, cannot be understated.

All calculations are as of 2/23/2016, executed on 1-year of daily data.

The results above were calculated using The RiskAPI Add-In, our unique software client which allows fund managers to access a whole spectrum of on-demand portfolio risk analysis calculations.

25 August 2015

A Look at the Recent US Equity Market Drop

To say that recent activity in the US Equity market has been unprecedented would certainly be an understatement. On Friday, August 21st, and Monday, August 24th the S&P 500 index fell 3.24% and 4.02% respectively. To put these declines in perspective: based on a year's worth of data, Monday's market drop was equivalent to an over 4 standard deviation event, making these declines extreme by any statistical measure:

Date   Return   Standard Deviations
August 20   -2.13%   2.86
August 21   -3.24%   4.17
August 24   -4.02%   4.83

For some perspective, to correctly estimate last Friday's decline using a year of daily data through August 20th, a parametric VaR would require a confidence interval of 99.9984%. This equates to the probability of such an event occurring to be less than once in 10,000 observations.

On the subject of VaR, one would require using data going back to 2008 to anticipate the returns just seen on Friday, August 21st:

For Monday, August 24th's decline of 77.68 points, only a conditional VaR using 7-years of data (again, including 2008) correctly estimated the S&P 500's decline that day:

Which brings us to why stress-testing is exceedingly important as a complimentary set of exposure analysis. Here we shock an at-the-money option on the SPY's starting with data as of August 20th using a -5% move in the S&P 500 Index:

The benefit of stress-testing is its lack of reliance on statistical (historical) data. Regardless of the presence of extreme events in a given data set (or detrimentally, in this case, the lack thereof), stress-testing allows for simulation of market shocks in all environments, volatile, extreme, or not.

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The results above were calculated using The RiskAPI Add-In, our unique software client which allows fund managers to access a whole spectrum of on-demand portfolio risk analysis calculations.

23 April 2015

Highest (and Lowest) S&P 500 Components by Beta

Current top 10 highest beta components of the S&P 500 index:

NameTickerBeta
First Solar IncFSLR1.9034
TripAdvisor Inc.TRIP1.8698
United Rentals IncURI1.8450
Newfield Exploration CoNFX1.8196
Micron Technology IncMU1.8081
Harman Intl Industries IncHAR1.7811
Skyworks Solutions IncSWKS1.7116
Allegheny Technologies IncATI1.6592
LyondellBasell Industries N.V.LYB1.6427
Freeport-McMoRan IncFCX1.6155

Current top 10 lowest beta components of the S&P 500 index:

NameTickerBeta
Sigma-Aldrich CorpSIAL0.0244
Pepco Holdings IncPOM0.2402
HCP IncHCP0.2414
Family Dollar Stores IncFDO0.2892
Health Care REIT IncHCN0.3474
Newmont Mining CorpNEM0.3502
Ventas IncVTR0.3719
Southern CoSO0.4073
Duke Energy CorpDUK0.4118
AvalonBay Communities IncAVB0.4400

All calculations are as of 4/22/2015, executed on 1-year of daily data, adjusted for corporate actions.

The results above were calculated using The RiskAPI Add-In, our unique software client which allows fund managers to access a whole spectrum of on-demand portfolio risk analysis calculations.

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