The spread trader can easily use the time series calculator to chart the historical development of any trading strategy, such as a spread or a basket of different products. This is makes it easy to spot trading opportunities when the price of the strategy moves outside its normal range. All defined expressions are saved together with the chart. Once defined, the most recent development of any such strategy will be instantly available.
The directional trader may want to detect lead-lag relations. For example, it is possible that rising Cape prices tends to be followed by rising Panamax prices the next day. If this is true, it represents an imperfection of the market that a trader can exploit. Checking a hypothesis like this with the Matrics time-series calculator is a breeze. One solution is to compute a moving correlation between the increments of one series versus the increments of the other series lagged by one day. Mainly positive correlations would confirm the hypothesis. This analysis is set up with a few clicks. Note that lagging is central here. Unlagged price changes are almost always positively correlated, but this is not very helpful for trading. Knowing about a lagged relationship, on the other hand, allows the trader to buy now in the anticipation of a likely price increase tomorrow. To help detect relationships of this kind, Matrics has simple check box functionality to apply lagging or differentiation to any series, including both “top-level” series and parts of larger expressions.
The option trader can quickly chart moving volatilities of a series with any desired window length. This is useful for detecting volatility changes and to evaluate when market prices for options are cheap or expensive.
The risk controller may be more concerned with the efficiency of various hedges. Assume for example that we want to hedge a short CoA position in the Panamax index P1A with the more liquid paper indices P2A, P3A, and PM4TC. Central questions are: What is the best combination of these indices to use for hedging? How well will this combination track P1A? How much would we loose in hedging efficiency by using two indices only, or even by hedging in PM4TC only? All of these questions are easily answered with the Matrics time series calculator. The required steps would be:
- Set up a basket series consisting of P2A, P3A and PM4TC.
- Let the system auto-fit this basket to P1A to determine the optimal hedge coefficients.
- Make a new spread series between this optimal hedge series and P1A. This gives a series displaying the hedging error.
- Repeat for the other possible hedge baskets.
None of these steps require more than a few clicks and are carried out in seconds in Matrics. Trying to do the same analysis in Excel would be sufficiently time-consuming and error-prone to stop most people from trying.
Finding the optimal coefficients and checking hedging fit when hedging P1A by a basket of (P2A, P3A, and PM4TC)
