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The Economy's Specific Influence

This demonstration shows how MacroRisk Factors can influence particular stocks and, in this case, portfolios. A specialized portfolio of stocks that EconomicInvestor says should strongly react to changes in the FTSE 100 (and not strongly to other changes in the economy) is shown here graphed against the FTSE 100 itself. (The portfolio was rebalanced every year to maximize its FTSE Eta Measure and minimize the effects of the rest of the economy.) Though the lines aren't identical, as company-specific factors and the other MacroRisk Factors are still at work, it is clear that EconomicInvestor's Eta Measures give a good picture of how stocks react to the economy.

Note: it is very rare to find investments that are only impacted by one MacroRisk Factor. In almost every case, stocks and funds are influenced by most of the 18 Factors at the same time. This is why it has been so difficult for the investing world to discover how the economy actually affects individual stocks and funds.

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