Bullish vs. Bearish

Is there a pure-ALPHA?

Posted on May 15th, 2008 by silvia.
Categories: Derivatives.

Basics:

1. -Investing has attached two types of risk: the risk specific to the underlying you invest in and the market risk.

2. Therefore, we have also 2 types of returns corresponding to each risk.

Key points to keep in mind:

1. The first risk decreases as you are investing in more underlyings meaning: The Power of Diversification.

2. The breakdown between the two types of return is identified through:

Stock Return = alpha + (beta x market return)

For the story above:

Alpha = the return earned for accepting exposure to underlying-specific risk. Alpha is theoretically uncorrelated with with beta.

Beta = the measure of an underlying exposure to the overall risk of investing in the specificmarket. An underlying with a beta <1is less risky than the overall market and vice versa . The market itself has a beta =1.

The specific risk can be diversified and this means that the return associated with accepting it must be zero for the market as a whole so in this case we are left with the beta return over the market.

And now the interesting part: the trend to separate beta from alpha investing.

Example: X uses index futures contracts to obtain exposure to the beta risk and return of a given asset class. Futures contracts can be bought for less than their face value so X spends Eur20 to obtain $100 of exposure to the, let’s sat ABC Index. The rest of EUR80 X invests them with a manager that is focused on providing “pure alpha”., meaning that, the manager tries to eliminate the exposure to beta risk (and beta return), leaving just alpha risk and return. How can the manager accomplish this: by selling short the relevant index futures contract, or by offsetting long and short positions in different stocks.

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Trading Rules

Posted on May 3rd, 2008 by bear.
Categories: Technical analysis.

I just read some technical analysis materials and I’ve decided to share their “wisdom” with you. What I’ll realy try to do is to summarize some trading rules that I found very interesting in order to improve one’s portfolio management.

1. Cut your losses;
2. Let your profits run;
3. Never average you losses;
4. Wait for a clearly defined situation;
5. Never try to compensate a loss;
6. Stick to your own style and strategy;
7. Avoid emotions and analyze everything;
8. Never trade on figures - market discounted them already;
9. Don’t be a hero - always question yourself and your abilities;
10. Be flexible - expect the unexpected;
11. Use intelligent stops and lock in a profit as the trend continues;
12. Look for trading opportunities which are not too much observed;
13. Never bet everything on one trade.

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The mighty euro!

Posted on April 22nd, 2008 by bull.
Categories: Technical analysis.

At the time I’m writing this post, EURUSD is testing the psychological value 1.6. It seems that EURUSD is not getting any resistance in its way up. But is that so? What will happen at this level? If we take a look at the price movements will see some interesting things. The trend is bullish, but in the last period it seems that is loosing power. At a first look I see a rising wedge formation, which usually is not a good sign for bulls. Looking at MACD, Momentum and RSI it is very clear that we have a bearish divergence on every indicator, which is another reason for making the bulls nervous . So, there are two signs that the movement up is weakening. Will be 1.6 a turning point for EURUSD?

Chart

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The idea behind a structured product

Posted on April 17th, 2008 by silvia.
Categories: Derivatives.

Is simple: to create an investment product that combines some of the best features of equity and fixed income. 

How can you accomplish this: by creating a mix of investments that can include bonds, equities, commodities, currencies and derivative products. The mix of investments in a basket determines its potential payout, level of capital protection, tenor, potential risks and other considerations. 

To be more specific, a structured product is a synthetic instrument that appeared on financial markets in order to respond to the client’s need of portfolio diversification. 

Through a structured product you can invest in a market, in a certain instrument or in a basket of instruments much more easily than going on that specific market where legal framework might be restrictive, costs are higher and practically impossible to directly invest in the desired security. 

It is important to know that a structured product, as simple as it can be - and it is not always like this – always has a derivative attached. The derivative component is often an option. Some products use the derivative component as a put option, other products use the derivative component to provide for a call option. 

These curios investment opportunities can be divided into 4 categories as their associated risk is getting higher:
- Capital protection;
- Partial capital protection;
- Certificates (not capital protected);
- Leveraged certificates.
Through these categories we can determine the client’s risk tolerance from very conservative to growth attitude. 

The capital protection products protect a portion of the invested capital (up to 100%) and can offer some guarantees on investment performance. Capital protected products offer a defensive investment and might be an ideal way to invest in financial markets with little or no capital risk. The capital is protected only if the structure is held until maturity, it can guarantee a minimum coupon so that the downside of the structure is limited to a certain gain. 

Partial capital protected products, as their name suggests, do not offer a 100% notional protection but the protection level can be established along with the investors depending on the structure, underlying, tenor and other determinants. 

Certificates are mainly performance tracking products on single stocks, indices, sectors, themes, commodities, interest rates, currencies. The investment performance of these certificates will parallel to the underlying asset and the investors will not be able achieve outperformance. Performance tracking products are designed for medium to longer-term investors who want to invest in a specific market, sector, theme or underlying that are represented by a respective Certificate.  

Leveraged products can offer to investors accelerated exposure to the underlying asset, can enable investors to participate on either side of the market benefiting from price increases (Long products) or price decreases (Short products). These types of Certificates are designed for self-directed active investors and have a high risk-return profile so they may not be suitable for inactive or conservative investors. 

This was a short introduction in the structured products universe, basic information for retail investors who are opened to new types of investment alternatives and to innovative ideas that can offer a new perspective to the world we live in and its investment opportunities.

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Yield to maturity

Posted on April 10th, 2008 by bear.
Categories: Spot market.

I intend to write more articles in the near future on fixed income market. Since then, I attached a file which automatically computes the clean price of the RON bonds issued by the World Bank and listed on the Bucharest Stock Exchange (IBRD09) using your requested yield to maturity.

Pricing IBRD09

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Ajustari futures

Posted on April 8th, 2008 by bear.
Categories: Derivatives.

Pentru ca majorarile de capital social nu afecteaza doar pe investitorii de pe piata la vedere, ci si pe jucatorii de pe piata futures, modificarile caracteristicilor instrumentelor financiare derivate sunt absolut necesar de constientizat.
Documentul atasat prezinta diferentele derivate din aceste modificari de capital social, precum si cuantificarea efectiva a acestora.

Ajustare futures

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Fear is the mind killer!

Posted on April 4th, 2008 by bear.
Categories: Hedging.

Pentru ca suntem pe o piata bearish si pentru ca senzitivitatea investitorilor e una foarte crescuta, acoperirea riscurilor a devenit scopul principal al participantilor in cadrul pietelor financiare.

Atasati gasiti un model de calcul al randamentului rezultat din acoperirea pozitiilor spot prin vanzarea de contracte futures in cadrul pietei de capital din Romania, precum si o scurta prezentare a fluxului acestui model.

Prezentare acoperire risc
Aplicatie calcul

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Corelare DJIA - BET-C?

Posted on August 19th, 2007 by bear.
Categories: Spot market.

Articolul  de mai jos incearca a fi un raspuns a intrebarii ce vizeaza gradul de corelare a pietei de capital din Romania cu principalele piete bursiere ale lumii.
In analiza urmatoare se folosesc ca date valorile istorice de inchidere pentru anul 2007 ale indicilor: DJIA, DAX, Stoxx 50, Nikkei 225, BET-C si BET.
La o prima evaluare a graficelor ce prezinta YTD pentru indicii mentionati mai sus observam o serie de similitudini privind evolutia acestora, insa nu putem exprima valoric legatura dintre evolutiile acestora.
Analizand gradul de corelare dintre seriile de randamente zilnice pentru fiecare indice observam, pe langa stransele corelari dintre BET-C si BET sau DAX si Stoxx 50, ca indicele compozit al BVB are cel mai ridicat coeficient de corelare cu indicele japonez Nikkei, prezentand in acelasi timp o corelare negativa cu indicele pieteti americane DJIA.
Asadar, mult mediatizata corelare dintre piata americana de capital si cea romaneasca pare a fi una fictiva.
Daca insa decalam zilele de analiza dintre BET-C si DJIA (adica pornim de la ipoteza ca evolutia din ziua ‘n’ a DJIA se regaseste in evolutia din ziua ‘n+1′ a BET-C), translatand valorile din ziua ‘n+1′ a BET-C in ziua ‘n’ si lasand neschimbate valorile DJIA, gradul de corelare BET-C/DJIA ajunge la valorea de 47.41%.
O alta modalitate de a calcula coeficientul de corelare dintre sirurile de valori ale indicilor mai sus mentionati este utilizarea in analiza a valorilor randamentelor acestora pentru perioade mai mari de timp. Calculand coeficientii de corelare in cazul randamentele saptamanale ale acestor indici, putem observa ca si in acest caz BET-C/ DJIA nu prezinta un coeficient de corelare superior valorii de 50%, indicele compozit al BSE fiind in continuare cel mai strans corelat cu Nikkei 225.

Neexcluzand posibilitatea unei corelari stranse BET-C/DJIA sau BET/DJIA pe perioade foarte scurte de timp, se poate insa afirma ca pentru intervale ce depasesc 6 luni gradul de corelare dintre aceste perechi de indici este unul irelevant.

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Majorari de capital social - formule de calcul

Posted on August 15th, 2007 by bear.
Categories: Spot market.

Majorarile de capital efectuate de companiile listate implica in mod evident si necesitatea calcularii unor valori precum: actiunile ce trebuiesc subscrise sau primite gratuit de catre un actionar, valoarea unui drept de subscriere, cursul ajustat al actiunii.
Daca calcularea numarul de actiuni ce trebuie subscrise/primite este relativ usor de realizat, problemele apar in momentul in care se incearca determinarea valorii dreptului de subscriere si a cursului ajustat al respectivei actiuni. Trebuie precizat de la inceput faptul ca teoria din care deriva metodologia de calcul a formulelor enumerate mai sus este cea a constantei capitalizarii bursiere a societatii. Mai exact este vorba despre egalizarea dintre suma capitalizarii initiale si aportul adus in de actionari la majorare cu capitalizarea finala (echivalenta).
Capitalizarea finala (echivalenta) este definita ca produsul dintre numarul total de actiuni ale societii (noi si vechi) si valoarea ajustata a cursului.

Mai jos sunt prezentate practic metodele de determinare ale acestor variabile.

Formule de calcul
Aplicatie calcul

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Raport AT 12.08.2007

Posted on August 12th, 2007 by bear.
Categories: Technical analysis.

Strans corelat cu evolutia pietelor externe, trendul actiunilor listate pe piata de capital romaneasca ramane caracterizat de o volatilitate ridicata. Inchiderea din aceasta saptamana gaseste indicii BET si BET-C ai Bursei de Valori Bucuresti la valori usor superioare celor de saptamana precedenta, in timp ce indicele societatilor de investitii financiare s-a depreciat cu aproximativ 2%.
Variatia saptamanala a indicelui BET a fost una pozitiva, valorile acestui osciland desupra nivelului suport derivat din retragerea Fibonacci de 23.6%. Miscarea corectiva inceputa din momentul marcarii maximelor istorice ar putea continua cu valul al treilea (c), posibelele nivele minime ale acestuia putand fi indicate de retragerile Fibonacci de 23.6% sau 38.2%.BET-C a incercat o usoara revenire ultima saptamana, insa corelatia evolutiei sale cu cea a indicilor pietelor externe a determinat o stabilizare a acestuia la valori usori superioare a 0.50%.
Indicele societatilor de investitii financiare si-a continuat evolutia descendenta. Inchiderea din ultima sedinta de tranzactionare este situata usor atat sub linia de trend ascendent cat si sub media mobila de 50 de zile. Stabilizarea BET-FI la acestea valori ar putea transforma aceste repere in puternice nivele suport. In caz contrar, urmatorul nivel suport de referinta este dat de catre retragerea Fibonacci de 38.2% situata in jurul valorii de 8,000 puncte.

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