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About This HTML File

This R HTML Document goes over the steps I’ve taken to analyze a particular security. This notebook will be updated periodically with new information and scripts and should be considered as a work in progress.

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The top graph illustrates the daily price distribution across each weekday while the second chart below shows the price distribution across each month over the target period in years - 4

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Examined the 20 most recent news articles, from Yahoo Finance, containing the crypto-currencies along with using the Loughran and McDonald dictionary of economic sentiment terms (Loughran and McDonald 2011) as a lexicon for the sentiment analysis.

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Graph showing the value of a $1 investment in each asset in the past as it appreciates over time.

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The shading is proportion to the securities correlation with one another: darker blue shades show strong positive correlation while the light blue ones show weak but positive correlations.

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Chart showing daily price changes or daily returns of the cryptocurrency. Red indicates the highest changes and Blue for the lowest.

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The dendrogeram is form of hierachical clustering in the form of a tree. The leaves of the tree are the individual securities or records and the lenght of the branch in tree indicates the degree of dissimilarity between corresponding clusters. The diagram below is based solely on return behavior of the individual securites/assets and makes the clustering based on that factor. Certain stocks may fall into natural groups, like energy, crypto currencies or financial assets - since they likely exhibit similiar return behavior - but you do have exceptions to the rule. The distance or height between two clusters is calculated as follows: \[D = 1 - C\] where D = Distance and C = correlation between security clusters.

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Value at Risk (VaR) is a statistically-based measure of risk that estimates the amount of potential loss that may be incurred due to adverse market movements. One-day VaR plots given at the 99% confidence level are shown in the two tabs. VaR is calculated using a look back period of 278 days. Note, the VaR calculations has limitations since volatility and covariances may not be constant, in which case using historical proxies will lead to wrong conclusions.

Note: The area under the density plot curves are equal to 1, however, given the a suffciently small base the average height may exceed 1 on the y-axis.

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The efficient frontier is the set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a given level of expected return. Portfolios that lie below the efficient frontier are sub-optimal, because they do not provide enough return for the level of risk. Portfolios that cluster to the right of the efficient frontier are also sub-optimal, because they have a higher level of risk for the defined rate of return. In the graph below the mean column represent average returns and StdDev colummn stands for standard deviation of those returns which represents asset risk. The BLUE dot represents the Optimal protfolio while the YELLOW dot shows the Optimal portoflio with equal weights.