HiddenLevers Portfolio Stress Testing Model Shines in Oil Crash

NEW YORK, NY--(Marketwired - Feb 13, 2015) -  Six years after a collapse in oil prices foreshadowed the 2008 financial crisis, investors and the financial professionals that serve them remain on high alert for similar unexpected and potentially wealth-killing events. 

A new White Paper (available here) by HiddenLevers, the premier portfolio stress testing platform, draws upon the 2008-09 financial crisis and the current Oil Crash, among other economic heart attacks, to gauge the performance of HiddenLevers own statistical model.

Key Findings

1. Model is accurate
HiddenLevers accurately projected (within 5%) impacts against stocks, ETFs, and mutual funds in 84% of cases studied. Accuracy was high in both amplitude and direction on 11 flagship securities analyzed, despite a breakdown in market correlations.

2. Model is versatile
HiddenLevers models performed well in a wide range of scenarios, including the 2008 financial crisis, the 1987 US stock market crash, the 1998 Russian default, and the 2014 Oil Crash.

3. Model can handle divergence
HiddenLevers allows users to adjust bond spreads assumptions, enabling successful modeling of bond fund performance in a divergent scenario like late 2014, where the S&P rose, bond spreads widened, and oil prices sunk.

Crude Awakening

Oil prices have been crushed since summer 2014. In the face of an underwhelming geo-political pop from Russia-Ukraine and the Islamic State, a mercilessly strong US Dollar, and a tug of war between North Dakota and OPEC, oil now hovers around the break-even price for shale oil.

In the Oil Crash scenario, HiddenLevers portfolio stress testing model successfully projected impacts for several flagship securities, including oil producers like Occidental Petroleum (OXY) and Exxon Mobile (XOM), large caps like IBM, ETFs like iShares Russell 2000 Index ETF (IWM) and iShares Barclays Aggregate Bond Fund (AGG), and mutual funds like Fidelity Contrafund (FCNTX).

"Since our inception in 2009, customers wanted back-testing -- proof that HiddenLevers regression engine worked," said Praveen Ghanta, HiddenLevers Co-founder and architect of the stress testing methodology. "The current Oil Crash presented a perfect opportunity to test our projected impacts against actual impacts, so we decided to lift up our skirts."