Correlations are present everywhere. The concept of correlation is one of the key constructs of statistics, modelling, simulation. It is used to design portfolios, to estimate risks, to perform VaR analysis, compute Probabilities of Default, etc. A correlation expresses how strongly two variable are interdependent. It is therefore of paramount importance to measure correlations correctly. … More The Dangers of Linear Correlation
What information do you look for when you decide to buy or sell a security? You basically look for expert’s buy/sell advice. Today, there is another piece of information which can be helpful: complexity. Knowing if you are purchasing a complex (or a simple) product has many obvious advantages. To that end, we have launched … More How Complex are Publicly Traded Securities?
DBRS, a Canadian rating agency, has recently downgraded Italy to BBB, removing the country’s last ‘A’. In the meantime, Moody’s has just been fined, yet again, this time US$ 864 million for “inflated ratings to risky mortgage investments in the years leading up to the financial crisis”. Last year, S&P paid US$ 1.5 billion in … More Politics and Ratings. The Empire Strikes Again.
An article published in the New York Times in January 2016, states : “The veracity of China’s economic data has been increasingly questioned as the slowing pace of the country’s growth has startled the world. And a new investigation into the official who oversees the numbers is unlikely to inspire confidence.” In the light of … More US vs. China and the Balance Sheet Credibility Index
Manipulation of Balance Sheets may have its advantages if uncovered. Credit Rating Agencies use Balance Sheets to come up with their ratings (‘come up’ and not compute as ratings, according to CRAs are opinions) which means that cooked books can get you a better rating. Public companies manipulate their Balance Sheets to look good on … More Uncovering Balance Sheet Manipulation
The search for early warning signs is one of the key issues for decision makers, managers and investors. The advantages of knowing in advance the evolution towards critical situations are obvious. Complexity is a new and powerful indicator that quantifies the degree of sophistication and governability of a business and which impacts its Resistance to … More Complexity-based Identification of Defaulting Companies
The two most important events of this year are the Brexit and the election of the President of the US. In the case of the Brexit, predictions were indicating a clear ‘yes’ while the result was a ‘no’. In the case of US elections, Clinton was going to win. Not only she lost, Trump won … More Trump, Brexit and the Failure of Predictive Analytics
The Brexit is now reality, the situation in Greece is still critical. The ECB cannot get inflation on track. The flawed ‘design’ of the EU and its currency is widely recognized. However, we ought to consider a few things: • The EU is a super-huge system, no matter how you look at it (size, population, … More A Systemic Look at the Eurozone
The two opposed versions of the economy may be epitomized (albeit simplistically) by the visions of Keynes and Friedman. The state and regulations versus a deregulated and shock-therapy philosophy. According to the Wikipedia: “Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the public … More Keynes vs Friedman – What is the Mix Today?
Knowledge is an organized and dynamic set of interdependent rules. An example of a rule: “if UNEMPLOYMENT increases then NEW HOUSE CONSTRUCTION decreases”. This is an example of a fuzzy rule – no numbers just a global trend. Rules can be more or less fuzzy (or crisp) depending on how many experiments (data samples) they … More What is Critical Complexity?