Thursday, 15 August 2013

How Healthy Are the US Markets? A Look at a System of Systems.

The US stock markets indices have been enjoying upward trends for a few months now. When analysed one by one, the situation appears to be very positive. Based on the last 60 days of trading and on the values of "Open", "High", "Low", "Volume", "Close" and "Adjusted Close", we have analyzed the DJIA, S&P 500 and NASDAQ Composite markets separately and then as s single interacting system. Here the results (analysis performed on August 15-th, 2013).

The DJIA. Resilience:83%

The S&P 500. Resilience: 97%


The NASDAQ Composite. Resilience: 95%

Because of the inter-dependencies that globalization has created, no system acts in isolation and no system should be analyzed in isolation. All systems interact, forming a huge system of systems. To show how this can impact the big picture we have analysed the three markets simultaneously. This is the picture:

DJIA + S&P + NASDAQ. Resilience: 72%

In the above map the first six red nodes correspond to the Dow, the following 6 blue are the S&P, the remaining 6 nodes correspond to the NASDAQ.

The combined markets have a resilience o 72% even though the three markets boast values of 83%, 97% and 95%, with an average of 92%. Surprised? We put together three components, each of which has a resilience greater than 83% and the resulting system has a resilience of 72%! This is a great  example of  "the whole being actually less than the sum of the parts". So much for linear thinking.