Modeling Education

Our Regime Segmentation Approach:

We systemically quantify the Regimes segmentation from a top-down and bottoms-up to give us a clear picture of the business cycle and where we are within that from a trading perspective. 

​

The macro regimes approach categorizes the economic environment into four distinct quadrants based on the interplay of growth and inflation.

​​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

In a Disinflation regime, economic growth remains robust while inflation is declining—often signaling improved purchasing power and a stabilizing pricing environment.

Reflation is characterized by both rising growth and inflation, typically driven by expansive fiscal or monetary policies and surging consumer demand.

Stagflation represents a more challenging scenario where inflation rises despite stagnant or falling growth, creating headwinds for traditional investments.

Lastly, Deflation involves both declining prices and reduced growth, often indicative of a contracting economy and increased uncertainty.

​

Understanding these regimes can significantly enhance our investing approach. For instance, in a disinflation environment, investors might favor growth-oriented assets and sectors that benefit from stable or even falling prices, while also taking advantage of stronger consumer spending power. In reflation, strategies might focus on cyclical sectors that thrive in an expanding economy, even as rising prices challenge profit margins. Stagflation requires a more cautious strategy, often prompting diversification into assets like inflation-protected securities or commodities that can serve as hedges. During deflation, capital preservation becomes key, and investors may shift toward high-quality bonds or defensive stocks. Overall, by aligning investment strategies with the prevailing macro regime, we can better manage risk and capitalize on the unique opportunities each environment presents.

​​​

The key takeaway is that Disinflation and Reflation regimes generally signal risk-on environments, while Stagflation and Deflation indicate risk-off conditions. However, even within these broad categories, there are specific nuances and opportunities—particularly in Stagflation and Deflation—that we actively leverage in our strategies.

​​​

​

​

​

​

​

​

​​

​​

​

Layering Volatility 

Building on our regime segmentation framework, we incorporate robust quantitative volatility analysis to examine the full volatility complex. Our Aggregate Risk Model integrates data from various volatility instruments and sector metrics to produce an oscillator indicator that differentiates between risk-on and risk-off environments. By monitoring extreme values and the rate of change, we can effectively time opportunities such as buying the dip—where values below 0 signal risk-off conditions and those above 0 indicate risk-on.

​​

​

​

​

​

​

​

​

​In addition, we analyze key metrics such as the implied correlation index, tail risk, dispersion, and other volatility-related indicators to uncover nuanced opportunities within the volatility space.

​

​

​

​

​

​

​

​​

​

​

​