Drawdown Analysis: Performace, Risk and Prediction of Financial and Technology sectors

Abstract

This thesis project is focused on the performance and risks of Financial sectors and Technology sectors within EUROSTOXX600 index between 2000 and 2023. We analyzed bull and bear market cycles, and Conditional Drawdown-at-Risk (CDaR). CDaR represents the expected maximum drawdown during a specified time horizon which allows to cover the general risks associated with turbulent markets. During an economic crisis, the Financial sector shows its relevance, and during events like the pandemic, the Technology sector shows its resilience. The study examines sector allocation risks. Risk distribution offers the possibility of spreading risk among different investments, so that each sector has a different risk level at different market conditions. According to the result investors should prioritize the Technology sector and avoid excessive risk in the Financial sector. Trend forecasting methodologies are also included in the thesis, helping investors to take smart and prudent investment decisions that are in line with their financial objectives.