Tuesday, January 6, 2009

Market Rewind on Risk

Since Joe Nocera, Michael Lewis and David Einhorn all had a chance to talk about risk in yesterday’s Required Reading segment, I thought it was timely of Jeff Pietsch at Market Rewind to pick this morning to offer up some of his thoughts on the subject of risk.

In ETF Risk in Review, Pietsch draws on data from his ETF Rewind tool to tackle the subject of risk-adjusted performance and ranks the 2008 performance of various ETFs within their grouping according to a Sortino Ratio (similar to the more familiar Sharpe Ratio, but the Sortino Ratio not penalize performance for upside volatility.) Not surprisingly, consumer staples (XLP) and health care (XLV) turn in the some of the best risk-adjusted performance numbers for 2008, while financials (XLF), emerging markets (EEM) and real estate (IYR) are notable laggards.

One key take away from the analysis is the value of thinking of ETFs in terms of miniature portfolios whose performance can be evaluated on a risk-adjusted basis. We witnessed history in 2008 and as painful as some of that history may have been to live through, hopefully we all enter 2009 with the benefit of a healthier and more sophisticated perspective on volatility and risk.

30 comments:

Jeff Pietsch CFA Esq said...

Thanks Bill! VIX down to nearly 37 this morning just a hair above its still rising 200-day moving average. Lowest since September? Amazing! -- Cheers, Jeff

Anonymous said...

i am dioing the free trial but didn't receive an email or see any place to log in. Where do i find the subscriber information ? I would like to review sundays newsletter. Thanks

Bill Luby said...

Hi anon,

The newsletter is distributed via email. Contact me at bill.luby@gmail.com and we will get it straightened out.

Cheers,

-Bill

Anonymous said...

The DJX and SPX indexes traded to a 200 point DJX and a 30 point SPX range of resistance twelve times between November 11th and December 31, 2008. These ranges occurred between DJX 8827 and 9026 and between SPX 888.65 and 918.85. The DJX and SPX traded above the 8827-9026 DJX and the 888.65-918.85 SPX thirty-five day trading range of resistance on each of the three trading days of 2009. Both of these indexes closed above this thirty-five day range of resistance on January second and sixth. This is one of many indicators that projects higher levels for the DJX and SPX indexes in January.

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