WILLIAMSBURG, Va., Jan. 28, 2014 /PRNewswire/ -- Assetdyne LLC, a privately held company founded in 2013 developed the Complexity Portfolio Theory (CPT) and offers an exclusively sophisticated system which measures the complexity and resilience of stocks and stock portfolios and introduces the concept of complexity to portfolio theory and design.
"Our goal is to form partnerships," says Hans van Hoek, managing director of Assetdyne's office in Virginia. "Initially, we did this through a pilot program with Wall Street professionals and research institutions in the United States to establish the capabilities of our solution in various fields such as asset management, hedge funds and equity analyses."
While conventional portfolio design often follows the Modern Portfolio Theory, which identifies optimal portfolios via minimization of the total portfolio variance, its patented technique designs portfolios are based on the minimization of portfolio complexity. The approach is based on the fact that excessively complex systems are inherently fragile.
Assetdyne's system is designed specifically for a turbulent economy, in which resilience represents a fundamental characteristic of a healthy business. In order to design resilient portfolios, it is necessary to embrace the concepts and measures of complexity. The system developed by Assetdyne allows users to compute the Resilience Rating and Complexity of single stocks, stock portfolios derivatives and other financial products.
The uniqueness of resilience lies in the fact that it takes into account, for the first time, the fundamental characteristic of our global economy - its complexity. Conventional approaches adopt statistical techniques (such as regression) to compute the so-called beta coefficient, which is a measure of systemic risk of a portfolio or a security in comparison to the market as a whole. Resilience, on the other hand, provides information on how chaotic or predictable the evolution of a security or a portfolio is. Such information is crucial when it comes to designing and managing portfolios in highly turbulent environments, dominated by shocks and extreme events.
"High portfolio complexity impacts negatively expected returns," says Hans van Hoek. "This is because high complexity has been shown to be a formidable source of fragility, hence vulnerability. In a turbulent economy, highly vulnerable portfolios and financial products are more exposed, therefore more risky. Our portfolio design strategy is based on minimization of portfolio complexity to provide significantly better returns."
Many firms claim to offer complexity management services, but they are unable to even measure it, so...
How complex is a portfolio?
What is the maximum complexity a portfolio can reach?
How resilient is it? How well can it resist market turbulence?
What does the portfolio structure look like?
How interdependent are the stocks composing the portfolio?
Which stocks actually dominate portfolio dynamics?
How well can the dynamics of the portfolio be predicted?
To answer these questions, one must analyze resilience and complexity of a security or portfolio and create a visual like a graph, map, or bar chart. This provides a new means of measuring not only the volatility of a stock or a stock portfolio but also the degree of intricacy or complexity. This is of paramount importance since, excessively complex systems not only have the capacity to deliver surprising behavior but they can also fail in countless, often, non-intuitive ways.
"We have done testing on the DowJones and Nasdaq," continued Hans. "While the Dow has reported a total loss of 4.2% during the entire 4-year period that we analyzed, the high-complexity portfolio produced gains of 6.3% and the low-complexity one an impressive 24.1%!"
Read more news from Assetdyne
SOURCE Assetdyne LLC