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How Statistical Clusters Work?

28 January 2014 by HCM

The weekly variation of the CDS market since the beginning of the market correction last week has been nervous but orderly on the European high beta CDS. The statistical clusters are aggregating the single names by class of risks. This week, these clusters have widened in proportion of their average level. All the bubbles except one are perfectly aligned. The non-investment grade communications sector has outperformed the marked. This is due to a single name outperformance. The CDS of the Spanish cable company Ono tighter by 50 bps on Vodafone offer to buy the company.

The clusters are providing homogeneous subsets of the CDS market to compute the accurate hedge ratios on relative values pair trades.