This blog post explores the impacts of Covid-19 by simulating two investment portfolios – a portfolio consisting of peripheral stocks, versus a portfolio consisting of central stocks in the Planar Maximally Filtered Graph. The goal was to highlight the repercussions of the Covid related decline in the market, which shook the world in mid-February (in the case of the US markets). The portfolios take positions at the worst possible timing in order to understand – had you invested just before the dramatic crash of the market, how would a peripheral portfolio behave compared to a central portfolio? Are peripheral portfolios any better during an unexpected crisis?
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Network analysis can provide interesting insights into the dynamics of the market and the continually changing behaviour. A Minimum Spanning Tree (MST) is a useful method of analyzing complex networks, for aspects such as risk management, portfolio design, and trading strategies. For example: