What Do Bloomberg Mean By This Carry Measure?

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Introduction

In the world of finance, the Bloomberg carry measure is a widely used indicator that helps investors and traders assess the profitability of holding a particular asset or portfolio. Developed by Bloomberg, this measure is designed to capture the excess returns that can be earned by investing in assets with high carry, which refers to the difference between the return on an asset and its risk-free rate. In this article, we will delve into the details of the Bloomberg carry measure, its calculation, and its significance in the world of finance.

What is the Bloomberg Carry Measure?

The Bloomberg carry measure is a quantitative indicator that estimates the excess returns that can be earned by investing in a particular asset or portfolio. It is calculated by subtracting the risk-free rate from the return on an asset, and then adjusting for the asset's volatility. The resulting value represents the excess return that can be earned by holding the asset, and it is often referred to as the "carry" of the asset.

How is the Bloomberg Carry Measure Calculated?

The Bloomberg carry measure is calculated using a complex formula that takes into account various factors, including the return on an asset, its volatility, and the risk-free rate. The formula is as follows:

Carry = (Return on Asset - Risk-Free Rate) / Volatility

Where:

  • Return on Asset is the return on the asset over a given period
  • Risk-Free Rate is the return on a risk-free asset, such as a government bond
  • Volatility is a measure of the asset's price movements over time

Selection and Rebalancing

The Bloomberg carry measure is calculated on a monthly basis, and it is rebalanced on a monthly basis as well. This means that the measure is recalculated every month to reflect changes in the asset's return, volatility, and risk-free rate. The selection and rebalancing process is as follows:

  • On a monthly basis, the carry measure for each asset is calculated using the formula above
  • The assets are then ranked based on their carry measure, with the highest carry measure assets being selected for inclusion in the portfolio
  • The portfolio is then rebalanced to reflect the changes in the carry measure of each asset

Significance of the Bloomberg Carry Measure

The Bloomberg carry measure is a widely used indicator in the world of finance, and it has several significance:

  • Investment Strategy: The Bloomberg carry measure can be used as a guide for investment strategy, helping investors to identify assets with high carry and potential for excess returns.
  • Risk Management: The measure can also be used for risk management, helping investors to assess the potential risks and rewards of holding a particular asset.
  • Portfolio Optimization: The Bloomberg carry measure can be used to optimize portfolios, helping investors to identify the most profitable assets and allocate their investments accordingly.

Case Study: Bloomberg Bond Futures Carry Index

The Bloomberg Bond Futures Carry Index is a widely used benchmark that tracks the performance of a portfolio of bond futures contracts. The index is designed to capture the excess returns that can be earned by investing in bond futures contracts with high carry. The index is calculated using the Bloomberg carry measure, and it is rebalanced on a monthly basis.

Conclusion

In conclusion, the Bloomberg carry measure is a widely used indicator that helps investors and traders assess the profitability of holding a particular asset or portfolio. The measure is calculated using a complex formula that takes into account various factors, including the return on an asset, its volatility, and the risk-free rate. The significance of the Bloomberg carry measure lies in its ability to guide investment strategy, manage risk, and optimize portfolios.

Additional Resources

For more information on the Bloomberg carry measure, please refer to the following resources:

  • Bloomberg GSAM Bond Futures Carry Index Fact Sheet: This fact sheet provides an overview of the Bloomberg Bond Futures Carry Index, including its calculation, rebalancing, and significance.
  • Bloomberg Carry Measure Whitepaper: This whitepaper provides a detailed explanation of the Bloomberg carry measure, including its calculation, significance, and applications.

References

Introduction

The Bloomberg carry measure is a widely used indicator in the world of finance, and it has been the subject of much discussion and debate. In this article, we will answer some of the most frequently asked questions about the Bloomberg carry measure, providing a comprehensive overview of this important financial concept.

Q: What is the Bloomberg carry measure?

A: The Bloomberg carry measure is a quantitative indicator that estimates the excess returns that can be earned by investing in a particular asset or portfolio. It is calculated by subtracting the risk-free rate from the return on an asset, and then adjusting for the asset's volatility.

Q: How is the Bloomberg carry measure calculated?

A: The Bloomberg carry measure is calculated using a complex formula that takes into account various factors, including the return on an asset, its volatility, and the risk-free rate. The formula is as follows:

Carry = (Return on Asset - Risk-Free Rate) / Volatility

Q: What is the risk-free rate?

A: The risk-free rate is the return on a risk-free asset, such as a government bond. It is used as a benchmark to compare the returns on other assets.

Q: What is volatility?

A: Volatility is a measure of the asset's price movements over time. It is used to adjust the carry measure for the asset's risk.

Q: How often is the Bloomberg carry measure calculated?

A: The Bloomberg carry measure is calculated on a monthly basis, and it is rebalanced on a monthly basis as well.

Q: What is the significance of the Bloomberg carry measure?

A: The Bloomberg carry measure is a widely used indicator in the world of finance, and it has several significance:

  • Investment Strategy: The Bloomberg carry measure can be used as a guide for investment strategy, helping investors to identify assets with high carry and potential for excess returns.
  • Risk Management: The measure can also be used for risk management, helping investors to assess the potential risks and rewards of holding a particular asset.
  • Portfolio Optimization: The Bloomberg carry measure can be used to optimize portfolios, helping investors to identify the most profitable assets and allocate their investments accordingly.

Q: Can the Bloomberg carry measure be used for all types of assets?

A: No, the Bloomberg carry measure is not suitable for all types of assets. It is primarily designed for use with fixed income securities, such as bonds and bond futures.

Q: How can I use the Bloomberg carry measure in my investment strategy?

A: The Bloomberg carry measure can be used as a guide for investment strategy, helping investors to identify assets with high carry and potential for excess returns. It can also be used for risk management and portfolio optimization.

Q: What are some common mistakes to avoid when using the Bloomberg carry measure?

A: Some common mistakes to avoid when using the Bloomberg carry measure include:

  • Ignoring the risk-free rate: The risk-free rate is an important component of the Bloomberg carry measure, and ignoring it can lead to inaccurate results.
  • Failing to adjust for volatility: Volatility is an important factor in the Bloomberg carry measure, and failing to adjust for it can lead to inaccurate results.
  • Using the Bloomberg carry measure for assets that are not suitable: The Bloomberg carry measure is primarily designed for use with fixed income securities, and using it for other types of assets can lead to inaccurate results.

Conclusion

In conclusion, the Bloomberg carry measure is a widely used indicator in the world of finance, and it has several significance. It can be used as a guide for investment strategy, risk management, and portfolio optimization. However, it is not suitable for all types of assets, and it requires careful consideration of the risk-free rate and volatility.

Additional Resources

For more information on the Bloomberg carry measure, please refer to the following resources:

  • Bloomberg GSAM Bond Futures Carry Index Fact Sheet: This fact sheet provides an overview of the Bloomberg Bond Futures Carry Index, including its calculation, rebalancing, and significance.
  • Bloomberg Carry Measure Whitepaper: This whitepaper provides a detailed explanation of the Bloomberg carry measure, including its calculation, significance, and applications.

References