Considering the economic data and our analysis, the following hypothesis, which constitutes the basis of the predictive model design, was established:
There is a negative correlation between a country’s COVID indicators and its currency strength.
If this assumption is true, a predictive mechanism applied to a country’s COVID indicators can be used to generate signals to short its currency against the USD as soon as the COVID situation is about to worsen.
SIMULATED Monthly returns during the out-of-sample period (May 2021 – August 2021)
|May 2021||June 2021||July 2021||August 2021||Total out-of-sample returns|
Cumulative total returns over the out-of-sample period (May 2021 – August 2021)