There is definitely more work for me to do here. For instance, recreating both the Powershares S&P 500 High Beta ETF (ticker SPHB) and the Powershares S&P 500 Low Volatility ETF (ticker SPLV) using historical index data and pricing in order to see if the same relationship holds prior to 2011. In the meantime, the relationship I briefly touched upon here is looking more interesting as I dissect the data.
For instance, the trend in the relative price of the SPHB/SPLV and the S&P 500 appears to be all important. To discern the trend of each, I calculated a 3-month and 6-month slope for each and compared them to each other. The results are shown below.
3-month slopes
6-month slopes
What appears interesting here is the rather tight relationship (actually the correlations of each are over 80%), except for the period starting in November 2012 through about February 2013. It is my opinion that the uncertainty surrounding the fiscal cliff likely held down the market's valuation and price, which now looks like it has fully caught up. However, it appears we are seeing another dynamic beginning to play out, as less-cyclical/ less-risk equities are leading the rally. This could be a troubling scenario, especially considering today's Wall Street Journal report discussing that negative preannouncements are outpacing positive preannouncements by a more than 3-to-1 margin.
For instance, the trend in the relative price of the SPHB/SPLV and the S&P 500 appears to be all important. To discern the trend of each, I calculated a 3-month and 6-month slope for each and compared them to each other. The results are shown below.
3-month slopes
6-month slopes
What appears interesting here is the rather tight relationship (actually the correlations of each are over 80%), except for the period starting in November 2012 through about February 2013. It is my opinion that the uncertainty surrounding the fiscal cliff likely held down the market's valuation and price, which now looks like it has fully caught up. However, it appears we are seeing another dynamic beginning to play out, as less-cyclical/ less-risk equities are leading the rally. This could be a troubling scenario, especially considering today's Wall Street Journal report discussing that negative preannouncements are outpacing positive preannouncements by a more than 3-to-1 margin.
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