Systemic Risk Indicator - Aussie Stock Forums

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  1. #1

    Default Systemic Risk Indicator

    Hi guys,

    During this week I have written a crude but seemingly effective systemic risk indicator in R. I decided to share the code for anyone who might be interested.



    backtest[z > 0.00015] = 0


    Basically the idea is to get the avg pairwise covariance of daily returns for a basket of broad risk assets, and while the value is below a threshold trade a momentum system or similar, and then hedge out or short when the value is above the threshold.

    Here is a picture of a crappy plot which I attempted, since I'm not very good at plotting equity curves in R yet (i.e. the below is not an equity curve). Values of 0 indicate hedged (i.e. systemic risk is occurring) and all other values are invested in IWB (Russell 1000 ETF).

    Click image for larger version. 

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ID:	52800
    Disclosure: Long cash, gold, stocks.

  2. #2

    Default Re: Systemic Risk Indicator

    Dunno if anyone has been following this or not. It went active as of NY Close 20th June indicating to close any mom style positions with a Market-On-Close or at the next open. I generate trading tables the day before so I know what I need to do in advance based on a range of inputs (e.g. "At what price must the market close to be a 10-20-30-40-50-60 day closing low?").

    > tail(z,4)
    2013-06-19 0.0001136557
    2013-06-20 0.0002629768
    2013-06-21 0.0002632056
    2013-06-24 0.0002030679
    Click image for larger version. 

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Views:	26 
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ID:	52987
    Disclosure: Long cash, gold, stocks.

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