One way market participants can improve their inflation forecasts is to analyze it from many perspectives, just as a data scientist would. In a recent Street View, our colleagues on the Two Sigma Portfolio Management team use that approach to analyze both historical and forward-looking U.S. inflation forecasts. 

The Two Sigma Factor Lens TM  includes a Local Inflation factor, which is intended to help subscribers understand their exposure to the long-term inflation risk premium and short-term inflation surprises within the local currency area.1 You can read more about Venn’s Local Inflation factor in our three part Inflation Series:

  1. Local Inflation Factor Primer: In this blog post, we cover how the factor is constructed, what it means to have exposure to the factor as we’ve built it, and a summary of the factor’s historical performance.
  2. Factor InVe(nn)stigator: Inflation: We analyze several inflation-sensitive assets and their exposure to the Local Inflation factor and other factors.
  3. Managing Inflation Risk in the Current Environment: We discuss current inflation expectations and how investors can incorporate their inflation views into their portfolio construction and asset allocation decisions.

Read the full article entitled “Forecasting Inflation like a Data Scientist: 2021 Edition” here.

Read more of their research here, and subscribe to directly receive the latest research from Two Sigma, for the topics you choose, in your inbox.

 

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1 The Local Inflation factor is available in the USD and GBP versions of the factor lens only, where there are liquid markets for inflation-linked securities.

 

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This article may include discussion of investing in virtual currencies. You should be aware that virtual currencies can have unique characteristics from other securities, securities transactions and financial transactions. Virtual currencies prices may be volatile, they may be difficult to price and their liquidity may be dispersed. Virtual currencies may be subject to certain cybersecurity and technology risks. Various intermediaries in the virtual currency markets may be unregulated, and the general regulatory landscape for virtual currencies is uncertain. The identity of virtual currency market participants may be opaque, which may increase the risk of market manipulation and fraud. Fees involved in trading virtual currencies may vary.

 

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