Quant Macro Investing

Risk Taking Disciplined

Engineering targeted returns and risks

From Bridgewater Associates (2005) – click here

January 4, 2010 Posted by | Case Study, Cross-asset-class | Leave a comment

CDS vs stock index changes

A post on CDS (credit default swap, also here), which attracted interesting replies.  You are welcome to join the discussion.

1.  Very interesting feedback from reader “Frank Fong”:

I have done a analysis on the %CDS change and the corresponding country stock index YTD %.
It shows a correlation about -0.27.
Moreover, I use CDS YTD price change to replace %change,
the result shows -0.32.
It may mean that for emerging markets(higher cds price), their sovereign risk is more related to their index return.

2. (Feedback from me) So that is pretty low correlation…

However, I believe that when CDS moves big way (in whatever % change we define), stock index likely moves.

If there exists some consistent lead time move between them (say CDS usually moves big, then stock market moves big the other way), one can be used as “event risk” indicator to the other…

3. Subsequent email feedback from another “reader”:

The cds price does not vary linearly with cds yield.  The mechanism calculating CDS yield and stock index yield is similar.  I am not suprised to see the correlation btw cds yield and stock index yield is larger in magnitude.  The two correlations show roughly the same information in my opinion.

I am more concerned about finding event risk indicator.  Events which indicate large CDS movement leads to large market movement are not frequent in occurance over a long period so the statistical result may not be significant in identifying such events.  How could you infer such findings?

October 22, 2009 Posted by | Case Study, Cross-asset-class | Leave a comment

Relative Strength Rotation

http://marketrewind.blogspot.com/2009/10/two-simple-relative-strength-rotation.html

With markets roaring back and the SPY having broken $110 for the first time in over a year just moments ago, it seems that Relative Strength Rotation methods have come back into vogue.

There are literally dozens of ways to define relative strength, and it is important to recognize that different computations will serially and stably outperform their peers during various behavioral epochs. Furthermore, inflection points can be harsh using this method. Various smoothing methods, use of multiple time frame references, a modicum of forced diversification, and standard money management techniques can all be a big help with that. All in all, it’s a hard strategy to beat over time for those interested in always being invested.

Below I present two very basic mechanical trading systems employing rankings of current price divided by variously weighted simple moving averages among the selected ETFs. (The specific relative strength readings for which are provided every night in ETF Rewind* under the “Weighted Strength” column for nearly 200 tracking ETFs.)

Asset Class Rotation

The chart below indicates the equity curve that would have resulted from rotating into the single top performing major asset class ETF among the SPYEFA,EPPEEMDBC and AGG, as ranked according to relative strength, then re-balancing weekly on a simple/ non-compounded basis, with no friction/ trading costs assessed.

The compound average annual growth rate for the nine-year study period would have been +10.7% with a simple Sharpe Ratio of +0.5 and a maximum peak-to-valley draw down of -19.4% (versus the S&P500’s -51.8%). The equity curve is not optimized in any way, and involves no use of leverage or shorting: this is merely an extremely simple macro-asset-class switching method.

Currency Rotation

As currencies have been highlighted in the news lately, attached is a graphic highlighting another simple strategy rotating into the top two performing Currency ETFs among UUPFXABZFFXE and FXY, re-balancing weekly on a reinvested/compounded basis, with no friction/ trading costs assessed.

The compound average annual growth rate for the three-year study period would have been +14.2% with a simple Sharpe Ratio of 2.4 and a maximum peak to valley draw down of -8.9%.

Conclusion

At the very least, relative strength systems can provide natural stops for equity traders and additionally inform them as to which classes, sectors, styles and countries are running hot or cold in the current market environment. At their best, they can make for powerful trading systems in their own right.

October 21, 2009 Posted by | Cross-asset-class, Indicator setup | Leave a comment

BDI 與債息

HKEJ

BDI 與債息

法興銀行著名策略師 Albert Edwards 似乎知道老畢開邊瓣,在今日刊發的每周分析報告中,以圖表形式,比較了運費指數與德國十年期政府債券孳息走勢,發現債市與股市一樣,形態和方向跟 BDI 非常相似,而運費指數同樣走在債息之先【圖】。何以用德國十年期債息作比較基準,Edwards 未加說明。

老畢估計,那是由於德國乃出口大國,對環球貿易變化的敏感度,在西方發達國中無出其右,以德國債息結合運費指數測市,比以美債作基準更合理。

觀圖看勢,BDI 自6月初高位回落四成,CRB 商品指數6月至今亦見阻力重重,德國債息則偏軟……。看樣字,被拿來跟運費指數 pair up 的指標,大都在等候股市確認弱勢。雖說大政府當道,積極造淡並非上策,但不為風險資產轉勢作對沖,風險可能更高。

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September 11, 2009 Posted by | Cross-asset-class | 1 Comment

Baltic Dry Index Continues Leading The Stock Market

Baltic Dry Index Continues Leading The Stock Market

Published September 7th, 2009 in Trading Tags: , , , , , , .

While the Baltic Dry Index is a leading economic indicator, lately, it has been also behaving as a leading indicator of the stock market.

I hinted towards this early in the year when it looked like it had put in a significant bottom and I wondered if the Baltic Dry Index would lead the stock market higher. Of course, we now know it certainly did.

The index measuring international shipping rates around the world bottomed in early December 2008 three months ahead of the stock market (green arrows):
Baltic dry index leading stock market SPX chart comparison Sept 2009

In fact, if you compare the S&P 500 index for the past few years with the Baltic Dry Index (BDI), it would seem that shipping rates have lead the equities from 1 to 3 months in both rallies and tops (take a look at the marked points on the chart above).

Of course, the relationship is fuzzy and not a one to one, up and down, direct correlation. But in all its fuzziness, you can still make it out rather clearly. You can even see that about a month before the stock market went into a waterfall decline last year, the BDI broke down below its low and started on its head first dive.

So what is it saying now?

The BDI topped out in early June 2009 at 4291 and has since been in a downtrend. In keeping with the same approximate time lag, we would expect the stock market to top out in late August or early September. Which is right about now. We’ve been underwater since the S&P 500 index hit 1031 on August 27th, 2009. Now, I’m not suggesting that you trade just on this type of thing but it does provide an interesting context. Especially when you consider everything else which is telling longs to be cautious.

If you just joined us, we went over multiple reasons for bearishness in the past weeks sentiment overview as well as the newly inflation adjusted mutual fund cash levels indicator.

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FT

Bears, keep the faith

Posted by Neil Hume on Sep 10 09:54.

It is not much fun being a bear at the moment with seemingly everything going up – except the US dollar. But there is still hope, according to Soc Gen’s Albert Edwards.

In his latest Strategy Weekly he draws our attention to the recent performance of the Baltic Freight index, which is some 40 per cent off its June high.

I was reading the other day the blog of my former colleague Daniel Pfaendler, who was making some interesting observations on bond yields and the Baltic Freight Index which we replicate on the cover chart. He believes the weakness of commodities is evidence that the Chinese commodity re-stocking cycle is drawing to an end. He cites Trader’s Narrative blog – that suggests equity investors should also be watching closely.

Here’s why.

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Scary huh? Albert thinks so.
An end of the Chinese bubble of belief will have serious consequences for the global financial markets. For those who are looking for a trigger for a retrenchment in equity markets, we suggest watching the RJ/CRB and Baltic Freight indices closely.

And here’s the recent performance of the RJ/CRB commodity index.

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Some way off its August highs.

And there’s one more thing Albert thinks investors should be looking for. (Emphasis ours).
It’s almost as if the biggest credit bubble in history never occurred.

Investors are increasingly convinced that a sustainable global recovery is emerging out of the wreckage. All praise to the central bankers (and Gordon Brown) for saving the world!

I’m waiting till someone writes about the return of The Great Moderation and suggests Ben Bernanke is the new Maestro. Then I’ll know the lunatics have taken over the madhouse…..yet again!

 

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September 10, 2009 Posted by | Cross-asset-class | Leave a comment

量度熱錢進出指標與港股變化

HKEJ
2009年9月9日

量度熱錢進出指標與港股變化

讀者若有留意財經新聞,相信不難發現類似「熱錢流入香港,帶動港股上升」的報道。顯而易見,資金流入及流出,對資產價格,例如股市的變化有一定關係。因此,站在投資者角度,若能掌握資金或熱錢流入流出香港,對評估股市走勢有參考作用。究竟有什麼指標可以有效地捕捉資金或熱錢流入流出香港?而這類指標能否準確預測股市的表現?今期研究部將與讀者探討這些議題。

資金流向對股市表現,有着重要影響;當然,資金流入流出,也不一定預示股市必然上升或下跌,畢竟資金流向,受到多方面的因素影響,背後也可能由不同的因素促成,例如息差、新股上市集資或年結等;再者,資金流入,帶動股市等資產價格上升,抑或資產價格上升,吸引資金流入,還是兩者的關係是相輔相承,則是另一個課題。

五大量度指標

那麼如何監察資金流入流出香港金融體系?主要可由以下數據入手:

一、美元兌港元(美電)遠期點子(或遠期滙價〔outright〕);

二、美電滙價;

三、港元同業拆息;

四、金管局銀行同業流動資金結餘;

五、美港息差(美國息率減港元息率)。

以資金流入香港金融體系為例,當資金流入香港,反映有資金兌換成港元(不論以即期或遠期形式進行),間接地令港元滙價轉強(即美電及遠期滙價回落)。銀行整體頭寸因為資金流入的關係,而出現較寬鬆情況,間接地對香港同業拆息水平帶來壓力(即拆息下滑;當然,港元同業拆息也會受到美國聯儲局減息行動所影響)。港元息率回落,將拉闊美港息差(假設美息變化不大;當然,息差拉闊,亦會直接影響遠期點子)。而且資金持續流入香港,或將觸及金管局強方保證兌換價,金管局在市場承接港元買盤,銀行同業流動資金結餘必然上升(正如目前的情況)。由此可見,從以上五項指標中,可以體驗資金流入流出香港金融體系的情況。

美電遠期點子測市存不足

以上五項量度資金流入流出指標的變化,是否與股市有着密切的關係?這些指標又能否有效地預測股市的表現【圖一至圖五】?

從圖一至圖五,我們可以發現,以上五項測試香港資金流向的指標,與恒生指數有着不同程度的關係:

一、美元兌港元遠期點子方面:點子的變化反映兩地息差因素,所以圖一的遠期點子與圖五美港息差的變化甚為相似。除此之外,這也某程度顯示資金流入流出的情況。

從圖一可見,於1997年至1998年亞洲金融風暴期間,美電遠期點子大幅抽升逾1500點子,期間恒生指數亦同時出現顯著的回落,其他同步的例子可見箭咀所示,顯示美電遠期點子(及美港息差)與恒生指數,有着頗密切的關係。

不過,正如所有指標般,兩者的關係也有失效的時候,例如2005年及2006年年底至2007年第三季,遠期點子折讓及美港息差均出現較顯著的收窄,但恒生指數期間的表現卻照升,反映僅利用美電遠期點子及美港息差預測股市走勢,還有不足的地方。

同業拆息與股市關係密切

二、美元兌港元滙價與恒指的關係並非經常一致:從圖二可見,自2003年下旬開始,很多時每逢美元兌港元轉弱,恒指便有上升的趨勢【綠色箭咀所示】。不過,這關係也有失效的時候,例如2006年年中美元兌港元滙價轉強,但恒生指數卻持續向上攀升。由此可見,美電滙價的變化,同樣未必完全反映恒指走勢的全部,畢竟影響美電滙價(或恒指)的還有其他因素,更何況金管局不時在滙市作出入市行動。

三、港元同業拆息除受到美國貨幣政策影響外,資金流向也會左右拆息變化。自1999年後,港元同業拆息的變化,基本上與聯邦基金利率呈亦步亦趨走勢,顯示在聯滙制度下,港元拆息頗受美國貨幣政策所影響。不過,從圖三可見,港元同業拆息的變化,也有偏離聯邦基金利率的時候,例如2003年下旬及2006年年初,期間美國聯邦基金利率持平,但港元拆息卻持續回落,顯示資金有流入香港的情況,而當時恒生指數亦受惠資金流入而造好【藍箭咀所示】。

另外,如去年第三季,受到雷曼爆煲的影響,資金曾大幅流出香港,令港元同業拆息,由2%水平大幅抽升至4%之上,而當時恒指的表現,亦同時出現顯著下挫【錄色箭咀所示】。由此可見,港元同業拆息除受到美國貨幣政策影響外,資金流入流出也可能令拆息偏離美息的變化。當這情況出現時,某程度表示有較顯著資金流入或流出香港,而同業拆息也會與股市有頗為密切的關係。

四、金管局銀行同業流動資金結餘,同樣與恒指有一定關係,但訊號不是經常出現,且有滯後情況:這點不難理解,因為金管局很多時要港元觸發強方(即7.75港元)或弱方(即7.85港元)保證兌換價,金管局便會在市場上吸納美元或港元,因而令銀行同業流動資金結餘出現上升。故此,資金流向的訊號將較為滯後。不過,這訊號較其他指標更實在,因為每當結餘出現大幅上升或下跌時,必然顯示資金流入或流出的情況。

留意部分指標滯後

由以上的分析可見,量度香港資金流向的指標,尤其美電遠期點子、美港息差和金管局銀行體系流動資金結餘,某程度可預示資金流入或流出香港的情況,也為恒指的往後走勢帶來一定的啟示作用。不過,正如內文所述,這些指標很多時出現滯後,甚至出現一些虛假訊號;故此,以上的指標極其量只能較為有效量度資金流向形勢,以及港股在這資金流向情況下的大致走勢。若然利用這些指標作入市訊號,看來未必十分奏效。

分析員:呂梓毅

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September 9, 2009 Posted by | Cross-asset-class | Leave a comment