Sunday 10 November 2013

Rating a Company Based on Its Balance Sheet AND Stock Markets


Traditional rating of corporations is based on analysis of financials statements such as Balance Sheets, Cash Flows and Income Statements. Traders, on the other hand, look at stock performance, analyze trends, make projections. Often there is no time to look at Balance Sheets as things happen at Internet speeds. While trading takes place a thousand times per second, traditional rating is performed once a year when the Consolidates Balance Statement is published.

Recently, London-based Assetdyne has established a new form of Resilience Rating based exclusively on the performance of a company's stock - a radically innovative high-frequency rating mechanism.

Ontonix has recently come up with a new rating methodology which brings together both worlds - Integrated Resilience Rating. Basically, we blend quarterly financial statements with quarterly stock market performance. This is what it looks like in the form of an integrated Business Structure Map:


The first 13 nodes  correspond to stock market-specific information. The remainder come from a Balance Statement. The Complexity Profile below - which provides a quantitative and natural ranking of the relevance of each parameter in the map - shows in the case in question "Divided" is as important as, for example "Assets" - both have a footprint of approximately 7% on the Integrated Resilience Rating.




More examples of Integrated Resilience Ratings are available here.


Quarterly Integrated Resilience Rating is now offered to public companies on a subscription basis. For more information contact us.









Sunday 3 November 2013

Top EU Versus US Banks and Which System is More Vulnerable.


Which system of banks is more robust, that of the US or the European one? A recent analysis performed by ASSETDYNE using stock market data reveals that the US market is far less vulnerable in case of contagion. Here are the results.

Top US Banks.


A 4-star rating (84%) points to a resilient situation.

Top EU Banks.


Again, a 4-star rating (85%) reveals high resilience. So why is the US system potentially less vulnerable? Look at the map densities. The US Complexity Map has a density of 32%, that of the EU banks 76%, far more than double. This means in case of financial contagion, the EU system of banks is far more vulnerable that the American one. This is also evident if one examines the size of the nodes in each map. In the case of the US, there are 3, 4 dominant nodes (hubs) while in the EU almost all banks have equal footprint. Of course, we're not talking of revenue - by footprint we mean the impact of each bank on the overall resilience of the system. The above results also means that the EU system is far more difficult to reform than the US banking system. It is alo much more complex (39.37 versus 25.28)  Providing one wants to reform it. And financial lobbies allowing it.



www.assetdyne.com



How Complex is an Ulam Spiral


From Wikipedia: "The Ulam spiral, or prime spiral (in other languages also called the Ulam Cloth) is a simple method of visualizing the prime numbers that reveals the apparent tendency of certain quadratic polynomials to generate unusually large numbers of primes. It was discovered by the mathematician Stanislaw Ulam in 1963..."

How complex is it? Here goes the Complexity Map of the above image:


These are the corresponding complexity measures:





The high robustness of the image - 76.8% - means that its structure is relatively strong. This means, for example, that the image may be de-focused and still transmit most of the information it contains.

The amount of information the image transmits is nearly 154 bits.



www.ontonix.com



Monday 21 October 2013

Resilience Ratings of 28 EU Member States Q2/2013



The updated EU28 Resilience Ratings are now available. Just click on the corresponding icon and navigate the interactive Business Structure Map.

   
     
   
       
     
 
     


The Robustness (Resilience) ranking is as follows:





Data source: Eurostat.


Resilience Ratings performed using www.rate-a-business.com



www.ontonix.com



Sunday 20 October 2013

Rating the Resilience and Complexity of Stock Portfolios



Assetdyne offers a unique service which enables users to measure the complexity and resilience of stock portfolios in real-time. The Assetdyne portal is connected to stock markets and makes portfolio building very simple: it is sufficient to type the Ticker symbol of a security and "Add to Portfolio". Once a portfolio has been built and stored one may evaluate its complexity and resilience by simply clicking on the "Analyze" icon as illustrated in the image below.




By clicking on the "analyze" icon as indicated by the blue arrow, the system performs an analysis of the Dow Jones Industrial Average Index based on the "Close" values of the securities which compose the index. These are listed in the "Ticker Symbols" column above. Once the analysis has been completed, the system pops-up a window with an interactive Business Structure Map (or Complexity Map) of the portfolio. This is shown below.



The Assetdyne system may be used not only to analyze actual stock portfolios but also sectors of the industry. The above list shows sectors such as Oil & Gas, IT, Automotive, Banks, etc. Based on how the corresponding stocks evolve, the system provides a  reflection of an entire industry sector based on its complexity and resilience.

But why are complexity and resilience so important? This is why:

High complexity means difficulty in terms of understanding the dynamics of a system, to make forecasts, more fragility, higher likelihood of surprising behaviour, more turbulence.

Resilience, the opposite to fragility, is the most important feature a system (portfolio) needs in order to survive turbulence and high complexity of markets and of the economy in general. And today's markets and economy are extremely turbulent and dominated by uncertainty.

Some examples.

         




www.ontonix.com                www.assetdyne.com




Saturday 12 October 2013

Complexity, Criticality and the Drake Equation



Frank Drake devised an equation to express the hypothetical number of observable civilizations in our galaxy N = Rs nh fl fi fc L, where N is the number of civilizations in our galaxy, expressed as the product of six factors: Rs is the rate of star formation, nh is the number of habitable worlds per star, fl is the fraction of habitable worlds on which life arises, fi is the fraction of inhabited worlds with intelligent life, fc is the fraction of intelligent life forms that produce civilizations, and L is the average lifetime of such civilizations. But there is an evident paradox. According to the Drake equation, our Universe should be populated by thousands of civilizations similar to our’s. The number of stars that appear to be orbited by Earth-like planets increases on an almost daily basis. But if that is the case, where is everybody? Why are there no signs of their existence? Why does SETI fail to produce evidence that would support the Drake equation?

In 1981, cosmologist Edward Harrison suggested a powerful self-regulating mechanism that would neatly resolve the paradox. Any civilization bent on the intensive colonization of other worlds would be driven by an expansive territorial impulse. But such an aggressive nature would be unstable in combination with the immense technological powers required for interstellar travel. Such a civilization would self-destruct long before it could reach for the stars. The unrestrained territorial drive that served biological evolution so well for millions of years becomes a severe liability for a species once it acquires powers more than sufficient for its self-destruction. The Milky Way may well contain civilizations more advanced than ours, but they must have passed through a filter of natural selection that eliminates, by war or other self-inflicted environmental catastrophes, those civilizations driven by aggressive expansion.

We propose an alternative explanation of the paradox. In the past, the Earth was populated by numerous and disjoint civilizations that thrived almost in isolation. The Sumers, the Mayas, the Incas, the Greeks, the Romans, etc., etc. If one or more of these civilizations happened to disappear, many more remained. The temporal and spatial correlation between civilizations was very limited. However, the Earth today is populated by one single globalized civilization. If this one fails, that’s it. As we know, the evolution and growth of a civilization manifests itself in an increase in complexity. The Egyptians, for example, deliberately chose not to evolve and for many centuries they haven’t advanced an inch. Such a static civilization is only possible in the presence of an extremely structured and rigid society. But any form of progress is accompanied by an increase in complexity (a mix of structure and entropy). Until critical complexity is reached. Close to criticality, a system becomes fragile and therefore vulnerable. In order to continue evolving beyond critical complexity, a civilization must find ways of overcoming the delicate phase of vulnerability in which self-inflicted destruction is the most probable form of demise. It appears - see our previous articles - that our globalized society is now arguably headed for collapse and shall reach criticality around 2040-2045. What does this mean? If we fail to move past criticality, there will be no second chance, no other civilization will take over, at least not for millenia. Clearly, the biological lifetime of our species is likely to be several million years, even if we do our worst, but as far as technological progress is concerned, that will essentially be it. Based on our complexity metric and on the Second Law of Thermodynamics we can conclude that any world populated by multiple and disjoint civilizations will always tends towards a single globalized society. It appears that globalization is inevitable and this, in turn, accelerates the increase of complexity until criticality is reached.

We argue that the self-regulating mechanism that Harrison suggests ultimately stems from critical complexity. Only a civilization which is capable of evolving beyond criticality and in the presence of overwhelmingly powerful technology, can ever hope to reach for the stars. In other words, critical complexity is the hurdle that prevents evolution beyond self-inflicted extinction. Since none of the ancient (and not so ancient) civilizations never evolved beyond critical complexity - in fact, they’re all gone - they were all pre-critical civilizations. There has never been on Earth a post-critical civilization. The only one left that has a chance of becoming a post-critical one is our’s. But what conditions must a civilization meet in order to transition beyond criticality? Essentially two. First, it must lay its hands on technology to actively manage complexity. Second, it must have enough time to employ it. The technology exists. Since 2005.



www.ontonix.com