JCF to use Quantal analytics in bid to take on Barra

The module, called JCF Quant-Risk, is based on a core risk model from Quantal International, a Berkeley, California-based vendor of Web-based portfolio strategy products.

It will enable portfolio managers to predict the risks inherent in their portfolios at a time when investors are dealing with wild swings in market volatility and becoming increasingly aware of the need to optimise risk control.

JCF Quant-Risk predicts stock and portfolio volatility, and decomposes the 'active bets' of a portfolio versus a benchmark by attributes such as sector, country or style. It also calculates the predicted tracking error and beta versus a selected benchmark. JCF Quant offers a range ofbenchmarks, including Dow Jones, MSCI and FTSE, for comparison purposes.

Colin Rogers, JCF’s managing director, said five JCF Quant customers are trialling JCF Quant-Risk. "This is a perfect adjunct to the current JCF service," he claimed. "Unlike some risk models whose weaknesses have been more than ever apparent in recent years, Quantal’s model is well tuned todetecting emerging risk factors in a timely fashion."

Rogers claimed Quantal’s model differs from that of rival Barra, a major player in the risk management arena, by using a shorter time-frame of data.

JCF Quant-Risk is available as an optional module for users of JCF Quant, an Excel-based application that integrates broker estimates with macroeconomic data, company financials and historical pricing on 19,000 companiesglobally.

Quantal began work with JCF a year ago to strengthen their respective product portfolios. JCF Quant-Risk is the first fruit of this collaboration.

The second is Quantal PRO-JCF. Quantal PRO is Quantal International’s Web-based equity portfolio risk management and optimisation system. It is used by portfolio managers to construct and rebalance equity portfolios. The new service incorporates JCF’s equities information.

Larry Tint, chairman of Quantal, calls JCF’s earnings estimates, financial data and modelling capabilities "natural complements" to Quantal PRO. JCFsources its data from vendors, exchanges and more than 700 brokers globally.

Quantal’s approach to estimating risk was devised by Paul Pfleiderer, the William Sharpe professor of finance at Stanford University, and Terry Marsh, professor offinance at Berkeley University. The two co-founded Quantal along with Indro Fedrigo.

Quantal said its model adapts itself quickly to structural shifts in market risk by placing more emphasis on the recent past and by using daily data and procedures that estimate the factor structure implicit in stock pricebehaviour.

Barra officials were not immediately available for comment.