Predictive Strength
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Predictive Strength
Measures the asset's sensitivity to high quality corporate bond rates, captures the lead-lag relationship between the two assets.
Corporate bond spreads act as a real-time barometer of institutional risk tolerance. Widening spreads signal credit stress, prompting capital flight from speculative assets like crypto. Conversely, tightening spreads correlate with increased risk-taking capacity, creating favorable conditions for crypto inflows.
With crypto increasingly acting as a long-duration asset, demand for corporate bonds correlates with Bitcoin positioning.
The Corporate Bond Demand factor is an aggreagation of major bond indices, tracking corporate bond rates across maturities and credit ratings. The factor normalizes these rates relative to historical averages, creating a standardized measure of demand sensitivity.
To understand a predictive factors predictive power, we create a simple long/short strategy and simulate its past performance (with daily rebalancing):
The strategy is rebalanced daily, on a continuous basis. There are 0.5% transaction costs applied on each position adjustment.
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Predictive Strength