Punch line: the following analysis presents a dashboard of style-factor gauges to potentially telegraph extended factor behavior. Current breaches:
• z-score: R1K Growth/Value 3m & 6m z-score trigger a 2-sigma breach; R1KTech to R1K 3m, 6m & 12m z-score trigger a 2-sigma breach
• % deviation: R1K Growth/Value return breaches at the upper-tail %-tile at the 3m, 6m & 12m horizon; R1KTech to R1K return breaches at the upper-tail %-tile at the 3m, 6m & 12m horizon
The following analysis presents a dashboard of style-factor gauges (pdf link below), to potentially telegraph extended factor behaviour.
Style Factor z-score Nov 10, 2017
The style factors illustrated here include:
- Price momentum (GS GIR momentum factor)
- Russell 1000 growth/value
- Russell 2000/S&P 500
- Russell 1000 Tech/Russell 1000
- Nasdaq Biotech/Russell 1000
- GS hedge-fund VIP basket/Russell 1000
Page 1 (z-score): rolling 3m, 6m & 12m z-scores (current value less average divided by standard deviation) highlighting style factors whose current z-score >= +/- 2 (95% significance under normality). Additionally, as an indicator of significance, the %-tile metric transmits the % of time the indicator has been more extended over the 1/1/2010-to date time horizon. The time-series of the various style factors are also charted, schizophrenic lines notwithstanding, to provide historical context.
Page 2 (% deviation): the z-score indicator can appear stretched/muted if volatility is low/high. As a safeguard this analysis looks at the rolling 3m, 6m & 12m % deviation (current value relative to moving-average value), highlighting style factors in the 5% & 95%-tile tails over the 1/1/2010-to date time horizon.
Caveats:
- high-level rudimentary analysis susceptible to false signals
- item can stay at outlier levels for extended lengths of time (as the charts attest)
- indicators can mean revert simply by having the average adjust more rapidly to spot
- the 3m gauge can be whippy, the 12m gauge has more gravity but can be more glacial; if gauges move in directional concert to significant levels, the confidence in stretched behaviour, potentially vulnerable to mean reversion, may increase
By design, this is a 35k’ broad-brush assessment which may help serve as a platform for further detailed investigative work. Finally, the style-factors used can be modified, and enhanced, to more pertinent barometers or adjusted to suit the prevailing risk regime.
Please note: this weekly chart package is available on an annual subscription basis.
Note: calculations Risk Advisors, data Bloomberg
Proprietary and confidential to Risk Advisors