Quantifi, a provider of risk, analytics and trading solutions has published a whitepaper that explores how firms can take advantage of relative value credit opportunities with the right bond analytics. Relative value trading is a popular investment strategy for firms looking to achieve high returns while minimising risk.
Relative value credit strategy depends on the isolation of identical or very similar credit instruments, where one is assessed to be comparatively under- or overvalued. These might be bonds issued by the same borrower but at different points of the yield curve or be bonds issued by different but similar borrowers. In essence, the strategy relies on extracting value from dislocation in the pricing of credit risk across markets, instruments and maturities. While these strategies can differ significantly from each other, they have one thing in common; that is to take advantage of the opportunities requires sophisticated bond analytics.
“The use of analytics for debt securities has come into sharper focus and has been the subject of increased investor attention. To be able to spot opportunities, institutional investors need adroit analysis at their disposal to be able to isolate opportunities and execute trades before the opportunities disappear. Risk managers also need state-of-the-art tools to accurately measure and report on portfolio risk at all times,” comments Dmitry Pugachevsky, Director of Research, Quantifi.
A joint survey conducted by Quantifi, Celent and 7Chord revealed that advanced modelling and consistent relative value rank as the biggest obstacles in credit analytics. Today’s credit investors need reliable data and powerful analytics to help them gain actionable insights for better portfolio outcomes. The ability to anticipate and respond to market and portfolio changes are key motivators for investment managers to maintain a strong risk function. Sophisticated and robust analytics are an important component of this capability.
“Leading firms are deploying the latest advancements in technology and the best expertise to assist with the generation and retention of alpha. These firms are adopting technology providers such as Quantifi, which use new technologies including data science and artificial intelligence to provide actionable insights,” comments Avadhut Naik, Head of Solutions, Quantifi.