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Axioma World-Wide Equity Factor Risk Model Suite: An Overview - Qontigo


<br> - What are the main features and benefits of axioma risk models? <br> - How to access and use axioma risk models? H2: Axioma risk model methodology - How are axioma risk models estimated and updated? <br> - What are the different types of axioma risk models and how do they differ? <br> - What are the key innovations and advantages of axioma risk models? H3: Axioma fundamental risk models - What are the fundamental factors and how are they derived? <br> - How to interpret and use fundamental factor exposures and returns? <br> - How to perform risk and performance attribution with fundamental risk models? H4: Axioma statistical risk models - What are the statistical factors and how are they derived? <br> - How to interpret and use statistical factor exposures and returns? <br> - How to perform risk and performance attribution with statistical risk models? H5: Axioma macroeconomic risk models - What are the macroeconomic factors and how are they derived? <br> - How to interpret and use macroeconomic factor exposures and returns? <br> - How to perform stress testing and scenario analysis with macroeconomic risk models? H6: Axioma model transparency and customization - How to access and understand the details of axioma risk models? <br> - How to customize axioma risk models to suit your needs and preferences? <br> - How to validate and compare axioma risk models with other sources? H7: Conclusion - Summarize the main points of the article <br> - Provide some recommendations and tips for using axioma risk models <br> - Invite feedback and questions from the readers Table 2: Article with HTML formatting <h1>Introduction</h1>


<p>If you are a quantitative analyst, portfolio manager, or risk manager, you probably know how important it is to have reliable and timely risk models for your investment decisions. Risk models help you measure, monitor, and manage the sources of risk and return in your portfolios, as well as perform various tasks such as portfolio optimization, performance attribution, stress testing, and scenario analysis.</p>




axioma risk model handbook 44



<p>But not all risk models are created equal. Some may be outdated, inaccurate, inconsistent, or incomplete. Some may not capture the nuances and dynamics of different markets, regions, or asset classes. Some may not provide enough transparency or flexibility for your needs.</p>


<p>That's why you need axioma risk models. Axioma is a leading provider of innovative and comprehensive risk solutions for the global financial industry. Axioma's risk models are designed to meet the highest standards of quality, timeliness, transparency, and customization.</p>


<p>In this article, we will introduce you to axioma risk model handbook 44, which is a document that describes the methodology, features, and benefits of axioma's world-wide equity factor risk model suite. We will also show you how to access and use axioma risk models for your investment analysis.</p>


<h2>Axioma risk model methodology</h2>


<p>Axioma's world-wide equity factor risk model suite consists of four variants: a medium-horizon fundamental model, a short-horizon fundamental model, a medium-horizon statistical model, and a short-horizon statistical model. Each variant forecasts the risk for equities listed on global exchanges, covering over 70 countries and regions.</p>


<p>The fundamental models use a set of intuitive factors that reflect the characteristics of stocks, such as size, value, growth, profitability, leverage, liquidity, volatility, momentum, market sensitivity, dividend yield, industry, and country. The statistical models use a set of orthogonal factors that capture the common sources of variation in stock returns.</p>


<p>All axioma risk models are estimated and updated on a daily basis using a robust regression methodology that incorporates dynamic volatility adjustment (DVA), which improves the accuracy of risk forecasts especially during times of volatility changes. The models also use a new weighting scheme for estimating market-based exposures and a new methodology for selecting the estimation universe.</p>


<p>Axioma risk models offer several advantages over other risk models in the market. Some of these advantages are:</p>


<ul>


<li>Axioma risk models are updated daily, providing you with the most current and relevant information for your risk analysis.</li>


<li>Axioma risk models offer multiple views of risk, catering to different investment objectives and quantitative needs. You can choose between fundamental and statistical models, as well as medium and short horizons, depending on your preferences and goals.</li>


<li>Axioma risk models include macroeconomic models for some regions, allowing you to understand the sensitivities of your portfolios to key economic factors and perform stress testing and scenario analysis.</li>


<li>Axioma risk models provide complete model transparency, enabling you to understand and verify the details of the model construction, estimation, and validation. You can also customize the models to suit your specific needs and preferences.</li>


</ul>


<h3>Axioma fundamental risk models</h3>


<p>The fundamental risk models use a set of factors that reflect the characteristics of stocks that are commonly used by investors and analysts. These factors are derived from financial statements, market prices, analyst estimates, and industry classifications. The factors are grouped into three categories: style, industry, and country.</p>


<p>The style factors capture the cross-sectional variation in stock returns that is related to the financial attributes of stocks, such as size, value, growth, profitability, leverage, liquidity, volatility, momentum, market sensitivity, and dividend yield. The style factors are standardized and orthogonalized within each region to ensure that they are independent and comparable across regions.</p>


<p>The industry factors capture the cross-sectional variation in stock returns that is related to the sectoral affiliation of stocks. The industry factors are based on the Global Industry Classification Standard (GICS), which is a widely used and accepted industry classification system. The industry factors are hierarchical, consisting of four levels: sector, industry group, industry, and sub-industry.</p>


<p>The country factors capture the cross-sectional variation in stock returns that is related to the geographical location of stocks. The country factors are based on the country of domicile of stocks, which is determined by the primary exchange where the stocks are listed. The country factors are also hierarchical, consisting of three levels: region, sub-region, and country.</p>


<p>The fundamental factor exposures and returns are estimated using a single-stage root-cap weighted regression with constraints on the industry and country factor returns. The regression uses the daily excess local returns of stocks as the dependent variable and the factor scores of stocks as the independent variables. The factor scores are calculated using a proprietary methodology that combines multiple sources of information for each factor.</p>


<p>The fundamental risk models allow you to interpret and use the factor exposures and returns in various ways. For example, you can:</p>


<ul>


<li>Understand how your portfolios are exposed to different sources of risk and return by analyzing the factor exposures of your portfolios.</li>


<li>Identify the drivers of your portfolio performance by analyzing the factor returns and their contribution to your portfolio returns.</li>


<li>Perform risk and performance attribution by decomposing your portfolio risk and return into different components: style, industry, country, specific, and interaction.</li>


</ul>


<h4>Axioma statistical risk models</h4>


<p>The statistical risk models use a set of factors that capture the common sources of variation in stock returns that are not explained by the fundamental factors. These factors are derived from a principal component analysis (PCA) of the residual returns from the fundamental regression. The PCA is a statistical technique that transforms a set of correlated variables into a set of uncorrelated variables called principal components.</p>


<p>The statistical factors are orthogonal by construction, meaning that they are independent of each other and of the fundamental factors. The statistical factors are also standardized to have unit variance. The number of statistical factors is determined by a criterion that balances the trade-off between model parsimony and explanatory power.</p>


<p>The statistical factor exposures and returns are estimated using a two-stage root-cap weighted regression. In the first stage, the same regression as in the fundamental model is used to obtain the residual returns from the fundamental regression. In the second stage, another regression is used to obtain the statistical factor exposures and returns from the residual returns.</p>


<p>The statistical risk models allow you to interpret and use the factor exposures and returns in different ways. For example, you can:</p>


<ul>


<li>Understand how your portfolios are exposed to additional sources of risk and return that are not captured by the fundamental factors by analyzing the statistical factor exposures of your portfolios.</li>


<li>Identify the drivers of your portfolio performance that are not explained by the fundamental factors by analyzing the statistical factor returns and their contribution to your portfolio returns.</li>


interaction.</li>


</ul>


<h5>Axioma macroeconomic risk models</h5>


<p>The macroeconomic risk models use a set of factors that capture the sensitivities of stock returns to key economic variables, such as interest rates, inflation, exchange rates, oil prices, and GDP growth. These factors are derived from a regression of stock returns on economic indicators. The macroeconomic factors are available for some regions, such as Europe and Asia Pacific.</p>


<p>The macroeconomic factor exposures and returns are estimated using a two-stage root-cap weighted regression. In the first stage, the same regression as in the fundamental model is used to obtain the residual returns from the fundamental regression. In the second stage, another regression is used to obtain the macroeconomic factor exposures and returns from the residual returns.</p>


<p>The macroeconomic risk models allow you to interpret and use the factor exposures and returns in different ways. For example, you can:</p>


<ul>


<li>Understand how your portfolios are exposed to different economic scenarios by analyzing the macroeconomic factor exposures of your portfolios.</li>


<li>Identify the drivers of your portfolio performance that are related to economic conditions by analyzing the macroeconomic factor returns and their contribution to your portfolio returns.</li>


<li>Perform stress testing and scenario analysis by simulating the impact of different economic shocks or events on your portfolio risk and return using the macroeconomic factor exposures and returns.</li>


</ul>


<h6>Axioma model transparency and customization</h6>


<p>Axioma risk models provide complete model transparency, enabling you to understand and verify the details of the model construction, estimation, and validation. You can access and download all the model inputs and outputs, such as factor definitions, factor scores, factor exposures, factor returns, covariance matrices, asset-specific risks, and model diagnostics. You can also view and compare the model results with other sources of information, such as market data, analyst estimates, or other risk models.</p>


<p>Axioma risk models also offer a high degree of customization, allowing you to tailor the models to suit your specific needs and preferences. You can modify various aspects of the models, such as the estimation universe, the factor selection, the factor weighting, the factor constraints, the volatility adjustment, and the currency risk. You can also create your own custom factors or portfolios and incorporate them into the models.</p>


<p>Axioma provides various tools and platforms for accessing and customizing its risk models. You can use Axioma Portfolio Optimizer (APO) to optimize your portfolios using axioma risk models. You can use Axioma Risk Model Machine (RMM) to customize axioma risk models or create your own risk models. You can also use Axioma Risk (AR) to perform risk analysis and reporting using axioma risk models.</p>


<h7>Conclusion</h7>


<p>In this article, we have introduced you to axioma risk model handbook 44, which is a document that describes the methodology, features, and benefits of axioma's world-wide equity factor risk model suite. We have also shown you how to access and use axioma risk models for your investment analysis.</p>


<p>Axioma risk models are designed to meet the highest standards of quality, timeliness, transparency, and customization. They offer multiple views of risk for equities listed on global exchanges, covering over 70 countries and regions. They include fundamental, statistical, and macroeconomic models at varying time horizons. They also provide complete model transparency and customization options.</p>


<p>We hope that you have found this article informative and useful. If you have any questions or feedback about axioma risk models or this article, please feel free to contact us. We would love to hear from you.</p>


FAQs - Q: What is axioma risk model handbook 44? - A: Axioma risk model handbook 44 is a document that describes the methodology, features, and benefits of axioma's world-wide equity factor risk model suite. - Q: What are the different types of axioma risk models? - A: Axioma's world-wide equity factor risk model suite consists of four variants: a medium-horizon fundamental model, a short-horizon fundamental model, a medium-horizon statistical model, and a short-horizon statistical model. - Q: What are the advantages of axioma risk models over other risk models? - A: Axioma risk models offer several advantages over other risk models in the market. Some of these advantages are: daily updates, multiple views of risk, macroeconomic models, complete model transparency, and high degree of customization. - Q: How can I access and use axioma risk models? - A: You can access and use axioma risk models through various tools and platforms, such as Axioma Portfolio Optimizer (APO), Axioma Risk Model Machine (RMM), and Axioma Risk (AR). - Q: How can I customize axioma risk models or create my own risk models? - A: You can customize axioma risk models or create your own risk models using Axioma Risk Model Machine (RMM), which is a powerful and flexible tool that allows you to modify various aspects of the models or create your own custom factors or portfolios.</p> 71b2f0854b


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