We have extended our ‘Notos Sentiment Index'-family by adding a sentiment index for container shipping stocks. Both sentiment and stock index move in sync. Further testing confirms the predictive power of the sentiment index: The sentiment-driven trading strategy outperforms the ‘pure’ container shipping stock index.

We introduced the proprietary methodology of the ‘Notos Maritime Sentiment Index’ about a year ago. This sentiment index reflects whether global shipping stock prices rather tend to be ‘bullish’ or ‘bearish’. Since then, we have applied the same principle to the crude-, dry bulk- and most recently to the container shipping-sector.

As shown in the graph below, the container stock index (dark blue line) has developed in sync with the container sentiment index (light blue line) until the end of 2016. 

Thereafter, the sentiment index started to improve and passed into positive territory from June 2017 onwards. By contrast, the stock index remained subdued for some time. It began to pick up definitely in July 2017 and reached its temporary high one year later, together with the sentiment index.
Subsequently, both stock and sentiment indices fell sharply from their highs of early summer 2018. They hit their lows in December of the same year, like most of the global stock markets.

Since then, the sentiment has increased again and stayed above zero since spring of this year, with a short setback in August. Likewise, the stock index has gradually recovered and gained 8.2 index points, or 34 percent, since.

In brief, the ‘Notos Container Sentiment Index’ is calculated as an average of six sub-indicators:

1 | Momentum of the Notos Container Shipping Index
2 | Relative strength of the Notos Container Shipping Index against the MSCI World Index
3 | Global equities markets sentiment indicator
4 | Global stock market volatility indicator
5 | Containership earnings
6 | Ratio of containership secondhand prices to newbuilding prices 

The first two sub-indices measure the dynamics of the Notos Container Shipping Index on an absolute and relative basis against the broad equity markets. The next two sub-indices are related to the overall financial markets as we expect shipping stocks to react to global stock market sentiment. The last two indicators measure the sentiment at the containership charter markets and the S&P market.

By definition, the sentiment index can move between -1 and +1, each end-of-spectrum reflecting a complete ‘bear market’ and ‘bull market’, respectively.

Our general impression from the first graph is that the container shipping stock index moves in line with the container shipping sentiment index. Also, it seems that once the sentiment has started to slide, the stock prices follow suit. By contrast, an improving sentiment takes some time to translate into a rising stock index.

To test the potential predictive power of the container shipping sentiment index for the container shipping stock index (‘NCI’ in below graph), we assume the following trading strategy (‘NCI*’ in below graph): Once the sentiment index reaches positive territory, we buy into the Notos Container Shipping Index. In case the sentiment index drops below zero, we assume a short position in container shipping stocks.

The below graph reveals that during the observation period, the NCI generates a negative performance of -3.9% p.a. with a volatility of 32.7% and a maximum drawdown of 73.7%. When applying the sentiment-driven trading strategy NCI*, the performance increases to +10.9% p.a., whereas the volatility is 29.1% - about the same as before - and the maximum drawdown is down half to 36.2%.

This confirms that taking the sentiment index into account leads to a higher performance and lower risk in terms of drawdown of container shipping stocks.


This document has been prepared and approved by Notos Consult GmbH and is for informational purpose only. The information presented in this report is intended for the recipient to whom it was delivered. Reproduction or distribution of this document in whole or in part is not permitted without the express written consent of Notos Consult GmbH.
This document contains forward-looking statements. We caution the reader that forward-looking statements are not guarantees of future performance. Past returns are no indication of future returns. The development of the industry,
markets and companies described in this document, may differ materially from the forward-looking statement contained herein.
Information and opinions contained in this document have been compiled from sources believed to be reliable. Unless otherwise stated, any statements herein are based on our own estimates at the time of publication. Notos Consult GmbH makes no representation as to the accuracy or completeness of any of the information contained herein and accepts no liability for loss arising from the use of the information provided. 
This document is not an offer of any kind. This report has been prepared separately from any proposed offering of any security and as such information herein must not be relied upon as having been authorized or approved by the issuer of such security.

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