US investors were spoiled by US Treasuries which acted as a near perfect hedge to stocks during the 2008-2009 crisis. However, in real crisis, bonds rarely offer any comfort, and asset allocation fails (see post Death Spiral of a Country and IMF paper Systemic Banking Crises Database: An Update; by Luc Laeven ... – IMF). As a very timely example, we can examine Spain, which is not even to crisis level yet.
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| From TimelyPortfolio |
In Spain, there is nowhere to hide, and allocation offers no comfort.
R code in Gist (click raw to copy/paste):
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| #analyze asset allocation experience in Spain | |
| require(lattice) | |
| require(latticeExtra) | |
| require(reshape2) | |
| require(directlabels) | |
| require(quantmod) | |
| require(PerformanceAnalytics) | |
| require(RQuantLib) | |
| data <- read.csv("spain stocks and bond from bloomberg.csv",stringsAsFactors=FALSE) | |
| spainstock <- na.omit(as.xts(as.numeric(data[2:NROW(data),2]),order.by=as.Date(data[2:NROW(data),1],"%m/%d/%Y"))) | |
| colnames(spainstock) <- "SpainStocks.IBEX" | |
| spainbond <- na.omit(as.xts(as.numeric(data[2:NROW(data),5]),order.by=as.Date(data[2:NROW(data),4],"%m/%d/%Y"))) | |
| colnames(spainbond) <- "SpainBonds.10y" | |
| spainbondpricereturn<-spainbond | |
| spainbondpricereturn[1,1]<-0 | |
| colnames(spainbondpricereturn)<-"SpainBond.10y.Price" | |
| #use quantlib to price the Spanish bonds from yields | |
| #these are 10 year bonds so will advance date by 10 years | |
| #we can just use US/GovtBond calendar | |
| for (i in 1:(NROW(spainbond)-1)) { | |
| spainbondpricereturn[i+1,1]<-FixedRateBondPriceByYield(yield=spainbond[i+1,1]/100,issueDate=Sys.Date(), | |
| maturityDate= advance("UnitedStates/GovernmentBond", Sys.Date(), 10, 3), | |
| rates=spainbond[i,1]/100,period=2)[1]/100-1 | |
| } | |
| #merge returns | |
| spain.return <- na.omit(merge(spainbondpricereturn,ROC(spainstock,type="discrete",n=1))) | |
| #get drawdowns | |
| spain.drawdown <- Drawdowns(spain.return) | |
| #get in melted data.frame for lattice | |
| spain.drawdown.df <- as.data.frame(cbind(index(spain.drawdown),coredata(spain.drawdown))) | |
| spain.drawdown.melt <- melt(spain.drawdown.df,id.vars=1) | |
| colnames(spain.drawdown.melt) <- c("date","series","drawdown") | |
| spain.drawdown.melt[,"date"] <- as.Date(spain.drawdown.melt[,"date"]) | |
| #plot drawdowns | |
| direct.label(asTheEconomist( | |
| xyplot(drawdown~date,groups=series,data=spain.drawdown.melt, | |
| main="Spain - Drawdown of Stocks and Bonds (source: Bloomberg)")), | |
| list("last.points",hjust=1,vjust=0,cex=1.2)) |
