DARWIN Correlation now live

The DARWIN portfolio correlation engine is now in production.

This means the following:

  1. DARWIN Portfolio equity at risk is no longer the simple sum of individual DARWIN equity at risk (which would imply 100% correlation)
  2. Rather, DARWIN Portfolio equity at risk accounts for diversification by analysing the correlation between DARWINs in a portfolio – e.g. the sum is less than the parts
  3. Correlations are available at all times

Read on if you wish more detail on all the above.

Portfolio Equity at Risk

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Equity at risk in the above screenshot is 6.62% (top, right hand side) – rather than 20% as previously indicated.

Cross DARWIN Correlation

Simply click on the Equity at Risk tab (with the eye icon) to delve deeper into the correlation structure in your portfolio.

Screen Shot 2015-09-03 at 20.25.15

In the above correlation matrix, you can see that DARWIN NTI has e.g. a 5% correlation (0.05) with JJC, or 26% negative correlation with LEM (-0.26).

Correlation ranges are colour-coded for your comfort:

  1. Green (high diversification / low overlap) -> correlations of 0.2 or lower (including negative ones)
  2. Orange (medium diversification / overlap) -> correlations higher than 20% (0.2) but lower than 50% (0.5)
  3. Red (significant overlap) -> correlations higher than 70% (0.7)

Please note that we have imposed a lower bound of 0 for calculation purposes. E.g. the lowest correlation accepted for diversification purposes is 0%, and hedges (negative correlation) are ignored as a precautionary policy.

As ever, your feedback means the world to us, so keep it coming!

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