Case study

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Time series plot for the 1st and third principal component of the new data set (10 variables: 9 spot prices of EIA PADD regions and WTI spot price.

WTI Futures Curve Analysis with PCA (Part 1)

In this study, we examine the daily prices of the first four (4) contracts of WTI CL futures listed on NYMEX, compute the number of days to the delivery month for each contract, and carry out principal component analysis (PCA) in an attempt to uncover the core drivers behind the futures curve changes (i.e. level and general shape).

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Data plot for the spot weekly average of ultra low sulfur diesel in Nine(9) EIA PADD regions

Making Sense of Diesel Prices

In this case, we examine the highway retail price ($/Gallon) for “No.2 Ultra Low Sulfur (0-15 ppm) Diesel” in the EIA nine (9) PADD regions and carry on principal component analysis in an attempt to find a minimal subset of the principal components that capture (or explains) the variation (spreads) in prices across different regions with a minimal loss of information.

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CAPM

Calculating CAPM Beta

In this paper, we will apply simple linear regression to calculate the CAPM beta for two technology stocks: Microsoft (MSFT) and IBM, then validate the model’s assumptions, identify influential data-points (e.g. outlier), ensure structural stability over the data sample, and make adjustments.

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Demystifying Trading Strategy Returns

In this paper, we’ll examine a claim by a portfolio manager (let’s call him trader B) about his ability to generate statistically significant Alpha. Alpha is the excess-return compensation for the risk borne, and thus commonly used to assess active managers’ performances. Using plain summary statistics and empirical distribution plots (e.g. Histogram, QQ-Plot), we identified a single data-point with relatively high-return, and once excluded from the sample, the so-called alpha simply vanished.

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Predict This

The case deals with the predictability of the daily closing EUR/USD exchange rate, given its prior history. First, we constructed a trading strategy where we buy EUR at market open, and close the position (selling EUR) at the market close and calculate the daily return time series. After thorough statistical analysis, we found those daily returns behave much like a white-noise. No predictability power.

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