Complexity Economics

Index Complexity – Science Confirms Intuition

An internet server computer doing complex data processing and calculating

Which of these US market indices is the most complex: DJI, NASDAQ or the S&P? Surely, it is the NASDAQ because it is full of tech stocks. The DJI, being based on what we would call the real economy, is quite the opposite, more suited for investors who are less risk-hungry. The S&P clearly lies somewhere in the middle.

The plot below reports complexity of the said indices over a period of thirteen years (2000-2013) and confirms the above common knowledge.

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The interesting thing is that the complexity of the NASDAQ and S&P is increasing much faster than that of the Dow.

In terms of resilience – the capacity to absorb shocks and destabilizing events – the Dow, again, is the most resilient of the three indices. The NASDAQ is not only the most complex, it is also the least resilient index.

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More soon.

 

www.ontonix.com    science, not opinions.

 

 

 

 

Established originally in 2005 in the USA, Ontonix is a technology company headquartered in Como, Italy. The unusual technology and solutions developed by Ontonix focus on countering what most threatens safety, advanced products, critical infrastructures, or IT network security - the rapid growth of complexity. In 2007 the company received recognition by being selected as Gartner's Cool Vendor. What makes Ontonix different from all those companies and research centers who claim to manage complexity is that we have a complexity metric. This means that we MEASURE complexity. We detect anomalies in complex defense systems without using Machine Learning for one very good reason: our clients don’t have the luxury of multiple examples of failures necessary to teach software to recognize them. We identify anomalies without having seen them before. Sometimes, you must get it right the first and only time!

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