Expected Returns
Portfolio construction depends on expected returns that are used in any form of quantitative investment methodology. We provide a frameqork for building expected retunrs in several of the major asset classes: FX, bonds, and equities.
Equities
The inverse of the P/E Ratio is a good indicator for the yield of the equity market. For example, a P/E Ratio of say, 22 for an Equity Index translates into a equity market yield of 4.54%.
US Treasuries
The roll down returns are the best used as expected retunrs. For example, the US Treasury bond yield of 4.15% requires a flat yield curve and reainvestment risk of the coupons. The 3-month roll down return of the US 10-year bond is 1.188%.
EMU Bonds
The roll down returns are the best used as expected retunrs. For example, the 10-year German Bond yield of 2.85% requires a flat yield curve and reainvestment risk of the coupons. The 3-month roll down return of the German 10-year bond is 0.87%.
Foreign Exchange
The foreign exchange prices are estimated using the Purchase Power Parity, the Uncovered Interest Rate Parity, and the recent price development:
EURUSD
- Carry: 1.170
- Value : 1.151
- Trend 1.139
Risk Management Tools
If you are interested in learning more about the risk management tools, please send us a message.