The Business Cycle

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Interpretation

The charts above display the relative strength of each MSCI World Factor Index. A rising ratio in these charts signifies that a factor index is outperforming the market, whereas a declining ratio indicates underperformance. These indices, developed by MSCI (Morgan Stanley Capital International), are tailored to represent different aspects of the market, such as value, momentum, quality, and more. They were developed to reflect specific risk factors and investment themes, providing investors with targeted exposure to segments of the market believed to drive returns over time.

Further Information

Data Sources


Interpretation

The chart above gives a different view of the same data from the ratios above. The list below provides descriptions for each MSCI World Factor Index, highlighting distinct investment strategies and market segments in global equity markets.


Interpretation

The minimum spanning tree (MST) simplifies the data from the correlation matrix above by retaining only the strongest correlations between the sectors. If two indices are connected, it means that they are positively correlated and that they tend to move in tandem. By analyzing the structure of the MST, one can identify clusters of assets that move together. This visual tool is especially beneficial when considering portfolio diversification. In fact, Marti, Gautier, et al. (2017) found that the optimal Markowitz portfolio is found at the outskirts of the tree and that the tree shrinks during a stock crisis.


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