Lioness Associates, Inc.

Economic & Corporate Risk/Yield Reports

Reading Graphs

Risk, Yield, Core, Transient
Indicators/factors are classified as either Risk or Yield and then as Core or Transient. Risk factors are associated with contraction while Yield factors are associated with expansion.  Core factors are longer-lived while Transient factors  are short lived. Think of core factors as being the base trend (or fundamentals) while the transient factors reinforce or trigger the core trends with daily/weekly fluctuations.  The transient may also indicate the psychology of the market or the "mob factor" at play. If the transient direction is in opposition to the core, it likely results in a sideways direction but, not always
—more on this later. 

The graphs that we provide are:
  • Risk/Yield graph
  • Delta Core/Transient graph

and occasionally the

  • Core & Transient graph
  • Total Risk/Yield graph

Briefly, using the Facebook (FB)  2012 Risk/Yield graph as an example, the Yield area is above the 0 (equilibrium point) and the Risk area is below the 0 point.  The factors in yield and risk are further broken into two -- Core and Transient.  The Core is a longer term trend while the Transient is short-lived daily/weekly fluctuations. In the graph, the core factors start from the 0 equilibrium point and move outward while the transient factors "ride" on the core.  In some cases, there may not be core or transient factors present at points during the year.




IPO vs. INC graphs

You will notice that the FB graphs here are labeled "IPO" which is the acronym for Initial Public Offering.  Most of the graphs that you will see on these pages are "IPO" graphs which means that the graph is generated using data from the date of the IPO.  Rarely, you will see some "INC" (Incorporated) graphs and in that case, the graph is generated using data from the date of incorporation.  The IPO graphs are more frequently used here because that is the point at which the company became "public" and this chart gives a good view of the company from the outside which is how "investors" view a company.  The INC graph on the other hand, gives a view from inside the company and while it might be interesting to investors, is not likely to provide information that affects investors directly.  As another example, a CEO would usually want to see an "INC" graph rather than a "IPO" graph as the "INC" will identify potential areas of expansion/contraction that might not come to fruition for years. 



Facebook (FB) Example

Using Facebook as an example again, let's look at some specifics. 

  • Risk/Yield - Preponderance of activity near May 2012 time frame which happens to be the IPO time but, more importantly — the graph indicates that peaks go into both Risk and Yield indicating struggles between which direction to go in. This would probably be what a day trader would like but, someone investing for long term might consider this a "red flag".  Another important point is that the shoots in both directions are both the core and transient indicating issues with both long term and short term —in other words, the fundamentals and the mob direction.   As the graph moves into the summer, there is a noticeable decided tilt towards the risk area of the graph that is occurring with the core  but, the transient is not easily decipherable, at  least in this chart.  As the time flows into the fall, it is noticeable that there is a shift of the transient factors into a risk peak but, with the other factors it is hard to determine if there is a shift one way or the other.  The last period which is moving into winter, has peaks into both directions again indicating both long and short term issues. 
  • Delta Core/Transient - while the Risk/Yield portrays the entire picture, sometimes more detail is appropriate to determine where the direction is - Yield or Risk? That is what the Delta Core/Transient is meant to portray - which direction is the trend heading and by how much. In this case, it's obvious that the spring direction is to Risk for the Core (below 0) and slightly Yield for the Transient (bouncing along the 0).  In the case of company graphs, movement from 0 to up to  +/-200 could be noise (Note, this is not the case in country or USA graphs).  With very little decided movement of the Transient into one area or the other, it's likely an indication that changes in the company's value is a slow process rather than an abrupt one.  Note, the transient factors also indicate news (sometimes not good or bad) about the company, the downward move of the transient mid-September could be an indication of the Barron's article on Facebook.









  • Core & Transient - This graph may identify high and low points during the year.  It's important to note that you would be looking for periods that have both the core and transient heading in the same direction.  It's very important to note that the changes do not indicate a "dollar value" — so the core being at -100 does not indicate a price of let's say $25.  If the core moves up 100 again, it does not indicate a price movement of let's say $2.00 - that is NOT what the graphs show. If the core is at 100 at one period with a price of $26 and at 100 again later in the year, it DOES NOT indicate that the price goes to $26 at that period.  It's better to associate the change in direction or a movement in a direction as momentum.

  • Total Risk & Yield In some cases it would be practical to know how much total activity is occurring at a particular period. This might signal points in a year where a company might have dramatic moves or more activity not necessarily to specify a gain or loss, just more activity.  The total Risk & Yield simply takes all the factors that are part of our algorithms and graphs them with out respect to Core/Transient or Risk/Yield. 


General Note, there are many  additional factors that are not part of our algorithms.  Also, it's important to note that the Global graphs and the USA graphs MUST also be taken in consideration.  Movement in company graphs are dependent on what movements are indicated in the Global graphs and if a USA company, in the USA graphs.   

 



Example for USA Economy for 2007


USA 2007 Risk/Yield graph
The USA 2007 is used as an example for the Risk/Yield graph. To interpret the graph:
  • Yield area is above "0"
  • Risk area is below "0"
  • Yield area is comprised of "Core" and "Transient" (refer to legend)
  • Risk area is comprised of "Core" and "Transient" (refer to legend)
Two items are striking, the "Yield" up peak in October and the "Risk" down peak in November. Both of these correspond to a high for the DJ average the first week of October and a low the end of November.

There are additional peaks during the year, for example the Yield peak in  June corresponds to the peak that occurred in the Dow Jones in June 2007 and the Risk peak in March corresponds to the dip in March/April of the Dow Jones.
 

  

USA 2007 Delta Core/Transient graph

The USA 2007 is used as an example to explain the Delta Core/Transient Graph. This graph provides a more concise picture of both the long term trends and the short term trends. It provides the delta of both the core and transient  "Yield" and "Risk" factors and as a result, can provide a clear indicator of the momentum trend during different periods of the year. For example, the factors indicate three expansion ( Core Yield) momentum periods:
  • February
  • June
  • October
There are also two consolidation periods where the core fell below "0" (Core Risk) which places the momentum trend into the "Risk" area:
  • August
  • November
  • December
The April period might be classified a pullback but, since the Core did drop slightly below the 0, it was indicating that cracks were showing up in the foundation of the market. Just as important, the Transient moved at the same time into Risk and went a bit further than the Core.  The significance is that both moved at approximately the same time period and they  also moved back into Yield together.  As a side note, this quick improvement in the market and in the investor psychology  probably contributed to the  "irrational exuberance" where investors later in the year did not see the "falling off the cliff".

Note that the transient stays either on the 0 (equilibrium) or is Yield during much of the rest of the year (except for December).    It is interesting to note that during the August downtrend the Transient do not go below 0 and during the November downtrend, the transient did not drop very far below 0. In hindsight, this would indicate the unrealistic "market expectations" that the downturn was not going to be significant. It was only in December when the market was again struggling (core not able to move back into Yield again) that the investors were becoming more aware of the risk (transient in Risk).
 
If the Transient momentum is in the same direction and area as Core, it reinforces the momentum. If the "Transient" momentum is in the opposite direction and area as Core, it will likely cause sideways drift or lack of direction. But, this is not always the case and individual outcomes will differ with each case. 

As a general note, the USA and Global charts are more sensitive than the company graphs and changes which result in movement across the equilibrium point (0) may sometimes be felt in marketplaces, but again, this is not always the case.  Price shifts can be felt anyplace on a momentum move  — it could be one price movement or a series of smaller ones. Once a momentum peak has been reached ( in some cases, before it), price action could stabilize or start to drop, much depends on whether the down trend moves into risk or evens out in the Yield area.


  

USA 2007 Core & Transient Delta graph

This graph is not usually provided for companies even though it can provide good information.  In this case, the graph is very consistent with what occurred in the market in 2007 —the risk and yield peaks correspond with the Dow Jones.

In this case, the core and the transient were "going in the same direction" and that is not usually the case.  It usually takes more effort to "pull the good data" from this graph.

More importantly, a graph like this would have been useful at the first sign of trouble (April 2007) to indicate that there were potential addition issues in the coming months.  

  

USA 2007 Total Risk/Yield graph

The Total Risk/Yield is also a graph that is not usually provided for companies as the data might need to be "pulled" and evaluated rather than just simply looking at it. This graph provides a total of the factors used for the algorithms and while it sounds like it would be useful, it has limited benefits.  Usually, but not proven, most companies will range between about 1000 to 1500 and as such, would seem to indicate when a period could be "calmer" or more "intense" but, this is NOT necessarily the case.