Value

So didn't post this, but my pairs trade was crippled when Citi didn't pass their stress test.

this got me to thinking about the roll value plays in this. I have always seen trading as simply a numbers game, and have started realising that there are two teirs of trading

technical, where you use historical algorithms to try and find high probability situations where trades will be profitable

and fundamental, where you inherently look at the risk of the portfolio, and use the valuation of various securities to off set risk.

problem with this is that I am a FX guy at heart, which means technical is my game...buttttt what if I was to give a country value?

I have started throwing ideas around on how to value a country so you can buy the higher value, sell short a delta neutral version of the lower value, and profit.

this has lead me into my economics book.

1.  Interest rates.  Although this is a good indicator of what is strong or not, hard to choose the timeframe I wish to trade.  Should I use only post auction 10y bonds? etc.

2.  Real GDP m/m.  Harder and involves some calculations but more plausible.


now is there a way to create a sort of index of fundamental values for an economy so I could just grade these countries m/m and test whether or not the higher valuation is correlated to the movement of the FX rate?