Time to Manage Your Risk

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.

23 February 2016

PortfolioScience Sponsoring the 2016 EzeSoft Client Conference

We are pleased to announce that PortfolioScience will once again be sponsoring the Eze Software Group's Client Conference.

From the conference website:


Eze Software Group is excited to announce our next global conference will be held March 6-9, 2016 at the Diplomat Resort & Spa in Hollywood, Florida. Join your industry peers for 3 days of engaging content, multiple networking and social events, and warm weather!

Our 2016 conference will be bigger and better. We’re adding more industry and client speakers, more hands-on training, and a broader focus of industry topics. With multiple tracks over the course of the event, we’ll have something for everyone – regardless of your role.


The conference agenda can be found here: http://ezesoftconference.com/agenda/

Be sure to also join our Chief Executive Ittai Korin for the panel on risk:

Come hear our risk strategy product manager and a leading industry expert share best practices for managing risk and maintaining performance. They will discuss a variety of topics, such as how the frequency of making risk decisions must align with Alpha decisions, risk management within the portfolio management process, and how to manage risk in tumultuous markets.

Date: Monday the 7th
Time: 9:45am – 10:45am
Location: Atlantic Ballroom 2

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.


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.

[12 3 4 5  >>