Real-time Statistics Provide a Useful Look at the Market

Real-time Statistics Provide a Useful Look at the Market

To get a real-time look at the market from a purely statistical point of view, MCM’s Diffusion Analysis application provides data from the last 8 market data tables and the last 8 days of closing prices, which are stored in MCM’s Risk Management System database.. Users can choose their distinct look at the market for the instrument to be reviewed. While the most common review is the FNMA current coupon, all of the other instruments found on the MCM market data report are viewable as well.

The Diffusion Analysis view of the market provides three key statistics: direction, momentum and volatility. These statistics are driven from the respective prices stored on each instrument in the database and are defined as follows:

  • Direction indicates an increasing or declining price for the instrument selected.
  • Momentum designates the rate of change in the direction of the market. A positive momentum indicates that the market price for an individual instrument is growing at an increasing rate.
  • Volatility notes the relative stability of the market for the price process being examined.

When a diffusion process reveals that the market price for a given instrument is growing at an increasing rate with low volatility, a trader might wait to sell that product because a higher price will come in the next few trades or days ahead. Conversely, diffusion statistics that show a declining market price at a decreasing rate with low volatility would indicate a turn to a buy opportunity for the instrument reviewed. High volatility numbers indicate little or no reliability to the direction or momentum in the price process reviewed. Diffusion process statistics that show an increasing price with a declining momentum and low volatility indicate a top is being reached, and trades should be executed soon.

While diffusion analysis does not take into account fundamental analysis, events or volume-related data, it does provide the trader with a unique look at the market from a purely statistical standpoint. This point of view cannot be relied upon solely as a reason to buy or sell at any given time, but should be considered when timing is a question.

Sample MCM Diffusion Analysis Report

Direction: 0.00521
Momentum: -0.50000
Volatility: 0.04005

© MCM 2013