Off Topic

Big Data Probabilities of March Madness

2015 Final Four March MAdnessFor the next 4 days, more than 70 million brackets (40 millions people) will be filled out by Americans, entranced with the fallacy of picking a perfect bracket for the Men’s 2015 NCAA Basketball Tournament.  Between now and Thursday, millions will evaluate win-loss records, RPI rank, strength of schedule, points per game, and free throw percentages. But that’s all surface level.

You also have to consider who has the easiest road to the final four, which seeds historically have a higher probably of defeating the other. March Madness isn’t just for college basketball fans anymore, it’s turned into who has the best bracket amongst their friends (regardless of they’ve watched any games before the games begin).

Last year, the Oracle of Omaha, Warren Buffet, offered up $1 Billion to anyone who successfully picked every match up correctly. For another year, no one was able to predict each game correctly. While Buffet isn’t offering up $1 Billion this year,  The American Gambling Association estimates that $9 Billion will be wagered when it’s all said and done (That’s the same GDP size as The Bahamas). Enough for us to ask again, the probability of picking a perfect bracket.

We wrote a post last year about the actual odds of accurately choosing every game, and the numbers varied. If you flipped a coin, for each probability, the odds were 9.2 quintillion. Here’s the brief description again via, Business Insider:

“If all of these brackets are equally likely — if each game in the entire tournament is a 50-50 tossup, and picking the winner is basically a coin flip — we then get the odds of a correct bracket at one in 9.2 quintillion.

Of course, flipping a coin 63 times is probably not a very good strategy for deciding how to fill out your bracket. Most of the games are not 50-50 matchups.

Consider the first round (the round of 64) of the NCAA Tournament.  Of the 32 games in the first round, there are four games in which four of the best 64 teams (1st seeds)  play four of the worst 64 teams (16th seeds).

Since 1985, when the tournament first expanded to 64 teams, no 16th seed has ever beaten a 1st seed in the round of 64.

If we’re comfortable assuming that this trend continues, we can safely fill in the four 1st seed vs. 16th seed games on our brackets.

Now we have 59 games to pick, and if we flip coins for all those, we have a one in 259, or about one in 576 quadrillion, chance of winning the tournament. Still pretty terrible odds, but by making this one assumption, we have boosted our chances by a factor of 16.”

Will there be someone out there this year to defy the odds? Is big data getting closer to cracking the code of predicting winners? We wish everyone the best of luck. In case you want any assistance, here is FiveThirtyEight’s interactive bracket predictions, and Bing’s bracket predictions.

Photo Courtesy: NCAA.com

Weekend Reads: Millennials

Millennials:

What Do Millennials Really Want? – (Alan Murray)

{Infographic} Milllennials Coming of Age – (Goldman Sachs)

Crude Oil:

Where Do We Put All This Oil? – (Attains Alternatives Blog)

CME Group to launch new physical crude storage contract – (Reuters)

The Economy:

A Wall Street Journal Op-Ed Gets It Very, Very Wrong On Seasonal Adjustment – (FiveThirtyEight)

S&P:

Gap Filled – (Stock Twits)

Alternatives:

Listed Alternatives – (Meb Faber)

Events:

RCM Alternatives to host free panel discussion on alternative investments in Minneapolis Minnesota on March 11th — (Futures Magazine)

Just for Fun:

25% of the people have a 4th cone and see colors as they are – (Prof. Diana Derval)

New brewery Mikerphone takes up residence alongside SlapShot Brewing Co. – (Redeye Chicago)

Weekend Reads: RIP CME Pits

New Picture

 

CME sees $10 mln savings per year from closing futures pits – (Reuters)

The End of The Pits – (Points and Figures)

CME to close most futures pits in Chicago – (Crain’s Chicago)

Alternatives:

US endowments pare bets on alternatives – (FT)

Robo-Advisors don’t like Alternatives – (Wealthfront)

Managed Futures January Performance — (Attain Alternatives Blog)

Oil:

Lifting the ban on crude-oil exports should be next – (The Economist)

7 Technical Indicators to Tell When the Crude Sell Off is Over – (Attain Alternatives Blog)

Jobs Report:

Revisions Made This A Blockbuster Jobs Report – (Five Thirty Eight)

Financial Tech:

5 things I learned by leaving Wall Street to run a startup – (Business Insider)

Just for Fun:

First stars appeared 100m years later than thought, research finds – (The Guardian)

Twitter Reaches Deal to Show Tweets in Google Search Results – (Bloomberg)

Madam President, Role Model In Chief – (Medium)

Outrage Over Government’s Animal Experiments Leads To USDA Review – (NPR)

Counties where German-Americans are the largest ethnic group – (The Economist)

Mila Kunis and Ashton Kutcher want their daughter to be the first Female NFL Coach and with the Chicago Bears – (CSN Chicago)

This Year’s Santa Claus Rally

It’s the most wonderful time of year for those heavily weighted in the stock index ETFs… At least if you’re a believer of the famous “Santa Claus Rally,” which simply means that in the past, December has been historically kind to stock market returns. You know how we feel about past performance… it is not indicative to future results.

Santa Claus Rally

But we can’t deny if said past performance has been good for stocks. We talked about the Santa Claus Rally last year, and there is a lot of debate of whether the Santa Claus rally is a myth, or if there is some basis in fact.

Here’s this year’s observation from Stock Trader’s Almanac:

“According to the 2015 Stock Trader’s Almanac, since 1969 the Santa Claus rally has yielded positive returns in 34 of the past 44 holiday seasons—the last five trading days of the year and the first two trading days after New Year’s. The average cumulative return over these days is 1.6%, and returns are positive in each of the nine days of the rally, on average. Nevertheless, each year there is at least one day of declines.

Alternative research over a longer period confirms the persistence of these trends: According to historical data going back to 1896, the Dow Jones Industrial Average has gained an average of 1.7% during this seven-day trading period, rising 77% of the time.”

No one can really pinpoint the cause of such a rally, but this year’s run can be attributed to better than expected economic growth, via NBC news:

“The wind in the stock market’s sails lately has been the pledge by the Federal Reserve last week to be cautious about raising borrowing costs amid signs that the economy is picking up steam. Investors got another signal of the economy’s emerging strength on Tuesday when the government revised upward its final estimate of third quarter economic growth to the fastest pace in 11 years — 5.0 percent from 3.9 percent reported last month.”

Just today, stocks reached new all time highs off of this news but it hasn’t been slow small gains. Just days ago (5 trading days), the Dow Jones Industrial Average was down -4.3% on the month, and is now past 18,000. By our estimation, historically, there’s only been a 17% chance that the index finishes the month positive after a down move like that, let alone only 5 days {past performance is not necessarily indicative of future results).

But it hasn’t just been this rebound, or the last rebound. It’s that it only took the DJIA six months to go from 17,000 to 18,000. Before that, it only took seven months to go from 16,000 to 17,000 {past performance is not necessarily indicative of future results}. Will it take six months to reach 19,000? A year from now, will it be at 20,000? We’ll let others do the speculating.  Enjoy the ride while it lasts, and happy holidays.

P.S – Stocks aren’t the only thing at new all time highs. Managed Futures hit new all time highs in November {Past performance is not necessarily indicative of future results}.

Alternative Links: All about that Crude

Crude:

Oil holds below $60 as OPEC, Russia keep pumping – (Reuters)

The United States has an effective potential countermove: Congress should lift the 40-year ban on exporting crude oil and keep U.S. producers in the game. – (LA Times)

Crude Crash Set To Continue After Arab Emirates Hint $40 Oil Coming Next – (Zerohedge)

Oil is not the first commodity to crash in the post-crisis period – (Reformed Broker)

11 Things You Should Know About the Crude Oil Drop – (Attain’s Alternatives Blog)

The Best Tweets on Crude Oil’s Crash – (Attain’s Alternatives Blog)

Commodities:

Commodities Go From Hoard to Floored – (Wall Street Journal)

Commodities Trend Better than Stocks – (Adam H Grimes)

VIX:

This Signal Has Perfect Record Of Forecasting Year-End Gains – (Dana Lyons)

VIX Futures extends trading hours – (Hedge Week)

Liquid Alts:

Goldman Sachs details plans for liquid alts, ‘smart beta’ ETFs – (Investment News)

Checking in on Liquid Alternatives – (Attain Alternatives Blog)

BMO Global Unveils Liquid Alternatives Fund – (FIN Alternatives)

CFTC:

CFTC Bans Credit Card Use by Retail Foreign Exchange Investors – (Bloomberg)

Regulation:

AlphaMetrix settles with feds over misuse of client funds – (Crains Chicago)

MF Global Holdings nears settlement with CFTC – (Reuters)