Univariate Analysis

This tool is really simple & great to communicate with fundamental biased portfolio manager due to its simplicity – yet it is powerful to highlight significant exposures & how stable they may be

This can be run on historical return of a portfolio but gain most of its value when run against the constant bet portfolio (i.e. portfolio returns simulated using current holdings)

This tool allows for multiple metrics to be calculated on any “factor” where we have a time series with enough data point – see below a small example for illustration

The above is a rough & ready example using actual data (absolute returns 2013-2018) but it already tells us some interesting facts which are well known

  • The volatility of returns is higher when returns are negative than positive so a simple volatility estimate can be misleading
  • The volatility of the Min vol index is similar to the main index
  • More worryingly, the beta of the min vol index is highest when the market corrects & has a lower beta when the market is in positive territory…defeating the beta asymmetry argument for such a product (i.e. higher beta when market is up than when market is down, explaining the min vol premium)