Punch line: extreme episodes of UST10y rates rising with the MSCI EM concurrently selling off, a potential risk scenario, has EM healthcare as a consistent outperformer; recently, EM real estate and EM financials have been notable underperformers.  In the SPX space,...

Punch line: the following analysis showcases a user-modified mean-variance optimization framework using Hedge Fund Research (“HFR”) indices to construct an “optimal” hedge-fund strategy allocation.  The efficient allocation seeks out high Sharpe ratio, lower...

Punch line: the following illustrative analysis decomposes high-level fund returns into active alpha- and passive beta-based components.  It utilizes fictitious top-level monthly long and short, returns and exposures, which are typically provided to investors on a...

Punch line: Q3, 2016 SPX sector returns were moderately dispersed on either side of the ledger.  Sector returns were led by secular-growth tech and lagged by rate-sensitive sectors.  Intra-sector stock-return dispersion was dispersed with tech stocks displaying a wide...

Punch line:  following up on the prior piece, “anatomy of a crowded stock,” and given the market fragility last Friday, I applied the cumulative abnormal return analysis (“CAR”; summation of daily beta-adjusted excess return) to the SPX industry palate, over the...

Punch line: the following analysis attempts to study the life cycle of a crowded stock and illustrate the potential crowding, or not, of a few recent high flyers (S&P 500 metals & mining index: alpha-failure phase; S&P oil & gas storage &...

Punch line: currently the following S&P 500 sectors are flagged on a relative-value basis: mildly rich: info tech biased rich: utilities (low-confidence fit), internet index (QNET) mildly cheap: biotech index (NBI; low-confidence fit)   The following...

Punch line: the following broadly-illustrative guidepost solves for alternate net and gross exposure combinations that achieve a threshold level of portfolio volatility (highlighted between 6%-12%) across various volatility/correlation regimes: turbulent, transition...

Punch line: given the potential for systemic fragility in the wake of Brexit, notwithstanding the possibility of containment, I looked at the most onerous episodes of a cross asset-class, Europe-driven contagion barometer, which spilt over into the US, and the...

Punch line: Underscoring Mark Twain’s quote, “history doesn’t repeat itself, but it does rhyme,” the following is a comment from an early 2014 post: the recent disfigurement in the factor complexion of the market has a common high-level thread (“Venn” intersection)...

Punch line: given the recent episodes of systemic fragility in risky assets and as we enter the “sell in May and go away” time zone, I created a US cross asset-class risk-premium barometer to gauge the potential for risky-asset vulnerability.  Shown are the macro...

Punch line: over the last 6m the SPX to crude oil relationship has been moderately +ve, albeit somewhat noisily. However, this aggregated data belies the more forceful regime behaviour (+ve correlation pro-cyclical/demand-shock rather than –ve correlation...

Punch line: Q1, 2016 SPX sector returns reflect a modicum of inter-sector variability, though mask the intra-quarter see-saw price-action especially at the index level.  Sector returns, save financials and healthcare, were all in the green.  Intra-sector stock-return...

Punch line: the following analysis illustrates the expected risk-return profile that results from various net/gross exposure combinations, in the context of market return and alpha expectation. I’ve attempted to unite net and gross exposure, market return and...

Punch line: given the latest systemic fragility, with banks being the latest flash point, I looked at the most onerous episodes of a cross asset-class contagion barometer, which spilt over into the US as manifest by the SPX selling off and the VIX rising concurrently,...

Punch line: using an algorithm to isolate HFR’s hedge fund strategy indices experiencing the worst local relative-return selloff, sequentially folding backwards from today, reveals that HFRI distressed index has returned -16% vs.-3% for the HFRI weighted composite...

Punch line: I update the below ST macro risk gauge analysis on an ad hoc basis, when items are approaching/flirting with extreme levels: past 2-sigma fear levels in this instance; though upwardly magnified due to the low-volatility environment, latest moves...

Punch line: Q4, 2015 SPX sector returns rebounded from the prior quarter’s bloodletting.  Sector returns, although barely for energy and utilities, were all in the green.  Intra-sector stock returns exhibited mixed vol-scaled dispersion: highly dispersed in consumer...

Punch line: using an algorithm to isolate HFR’s hedge fund strategy indices experiencing the greatest local relative-return rally, sequentially folding backwards from today, reveals that HFRI convertible arbitrage index has returned 99% vs.39% for the HFRI weighted...

Punch line: using an algorithm to isolate sectors experiencing the worst local relative-return selloff, sequentially folding backwards from today, reveals that the  energy sector has returned -25% vs. 46% for the SPX over the latest drawdown episode lasting 4+ years;...

Punch line: using an algorithm to isolate sectors experiencing the greatest local relative-return rally, sequentially folding backwards from today, reveals that the consumer discretionary sector has returned 365% vs.154% for the SPX over the latest “ascendancy”...

Punch line: given the recent sector-based wobbles I took a deep dive into historical sector realignment during phases of healthcare under-performance.  In general, cyclical sectors have tended to benefit from a rotation out of healthcare which has also been typically...

Fixed Income: Rates: US: rates modestly higher and mildly steeper; UK: modest bear steepener; Germany: rates “Draghi”ed lower across curve; Japan: pivots tepidly flatter MT & LT US Inflationary Expectations: Breakevens biased higher in MT, modestly higher in LT;...

Punch line: The following is an attempt to use the insights from option pricing and delta-neutral hedging to help provide a guide for drawdown-based portfolio exposure management. By way of introduction, funds often have a stop-loss discipline in place at the...

Notables (wrt SPX): • equity: VIX ST correlation firmly –ve, near traditional unit inverse; EEM correlation decisively +ve • rates & credit: IG CDS ST correlation distorted to modestly –ve, on index roll, vs. normal mirror inverse boundary hug; OIS/Libor liquidity...

Punch line: over the last 6m the SPX-UST10y relationship on average appears noisily marginally +ve. However, this aggregated data belies the more forceful regime behaviour (risk-premium, on/off, much more so than duration-based) that has frequently prevailed, in the...

Punch line: the return-to-trough ratio (“RtT”) attempts to measure return generated relative to maximum pain incurred.  Computationally, RtT = return, divided by, worst drawdown. The road to hell is paved with good intentions and risk-reward metrics. At the risk of...

Punch line: the first year following the first hike during the 1994, 1999 and 2004 rate hike cycles saw differing equity-bond relationships: 1994 was classical long-duration while 1999 and 2004 were fairly regime agnostic.  S&P500 industry group performance was...

Punch line: Q3, 2015 SPX inter- & intra-sector returns were largely tarred with a top-down macro brush.  Inter-sector returns plumbed red save utilities and flattish consumer staples. Intra-sector stock returns, save utilities, exhibited a lack of vol-scaled...

Punch line: Market participants often tout the predictive powers of the VIX in being able to foretell prospective market (S&P 500) returns, particularly for market snapbacks given elevated levels of the VIX. Contrary to popular belief, the VIX has virtually no...

Punch line: YTD the SPX-Euro relationship on average appears quite random. However, this aggregated data belies the forceful regime behaviour (traditional FX, with SPX and Euro +ve/-ve in tandem, vs. US centric, with SPX +ve/-ve while Euro –ve/+ve) that has frequently...