dxFeed launched the dxFeed FX Risk Factor Parity Index™ (Parity of Risk; PARIS), designed to reflect the value of a currency basket equally exposed to three critical risk factors: „carry,“ „value,“ and „momentum.“ Developed using dxFeed’s methodology, PARIS offers an approach to currency market analysis and investment strategy optimization.
In accordance with the latest advancements in relevant academic literature, these risk factors have been strategically selected to capture the essence of currency market dynamics. „Carry“ represents the asset’s yield, „value“ indicates its fundamental price, and „momentum“ encapsulates recent price movements and trading behavior. Research indicates that the combined influence of these factors explains a significant proportion of FX rate dynamics, with an average R-squared of up to 60% across currencies.
PARIS is meticulously crafted to ensure optimal exposure and resilience against volatility shocks induced by the three key risk factors. By employing sophisticated optimization techniques, the index weights are calibrated to maintain a balanced and robust currency basket, effectively mitigating risk across various investment styles.
Designed to meet the needs of discerning investment professionals, PARIS offers a unique avenue for tracking the performance of a „safe haven“ currency basket. Its emphasis on controllable risk allocation aligns with the preferences of investors seeking stability and consistency in their portfolios.
„dxFeed’s Quantitative and Index Management Team performed rigorous research and back-testing in the development of the FX Risk Factor Parity Index. We are delighted to come to the market with a benchmark for risk factor parity optimization in a transparent index for passive investment solutions. The PARIS Index was designed to provide a unique and innovative approach to budgeting a currency basket’s risk. This continues dxFeed’s commitment to serving investors valuable tools and index solutions to navigate the complexities of the financial market landscape,“ said Bruce Traan, Global Head of Indices at dxFeed.
You can find more information about dxFeed Indices here.
