State Street Launches Turbulence Indices to Assist Institutional Investors with Active Portfolio Management and Diversification
Business Wire, July 28, 2010
Indices Help Investors Identify Investment Risk for Equities,
Currency, Fixed Income and Global Asset Classes
BOSTON — State Street Global Markets, the investment research and trading arm of
State Street Corporation (NYSE:STT), today announced the launch of its
Turbulence Indices, a suite of indices that measure the unusualness, or
turbulence, of market behavior on a daily basis, which can help
investors stress test their investment strategies, build more versatile
portfolios and dynamically scale risk exposure. State Streets
Turbulence Indices cover US and European equities, currency, US fixed
income and global asset classes. Each index provides a single, daily
measure of turbulence based on the abnormality of its constituents
returns on that day.
Unusualness and abnormality can result from extreme events that move
volatility up or down or from a sudden change in correlation between
assets.1 This can be particularly effective in managing
portfolio risk, because the relative turbulence of a given day can
result from the unusual performance of a single asset or from the
extraordinary interaction between a combination of assets, which would
not appear unusual in isolation.
One of the most valuable lessons learned over the last few years of
market turbulence is that traditional portfolio construction techniques
cannot comprehensively assess the full amount of risk inherent in a
portfolio, said Will Kinlaw, managing director and head of Portfolio
and Risk Management Research at State Street Global Markets. State
Streets Turbulence Indices go a step further from traditional
volatility measures by identifying periods in which assumptions about
correlations between investments as well as their volatilities
should be revisited. The Turbulence Indices can be used alongside other
measures of volatility to better manage current portfolios and prepare
for additional instability in the market.
Institutional investors can use the indices to stress test their current
financial models by assessing the performance of the model under extreme
conditions
currency trading strategies
Jul 29, 2010
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