The Constant value is calculated to price the basket to = 1.0000 as of 01/01/2014
What is this Index?
The VARIANSE Currency Commodity Index is designed to track the performance of three commodity currencies versus the US Dollar
The currencies in the basket are the following: Australian Dollar (AUD), New Zealand Dollar (NZD) & Canadian Dollar (CAD).
These developed economies depend on primary commodities for a significant share of their export earnings. As a result, the wild fluctuations of global commodity prices are likely to account for a large share of these countries terms-of-trade shocks and have a critical influence on the value of their currencies.
Trading strategies involving currencies with high sensitivity to commodity prices can draw upon the index to test macroeconomic rationale, strength of historic correlations against the basket and instances of correlation decoupling to identify tactical market opportunities.
N = Number of components
Pair N = Market price of Nth Pair
2. Then we multiply the value A by the constant factor*
*A constant factor is used to turn the basket into an
index which sets the value of the basket to usually
equal 1 or 100 at a pre-determined date in the past,
this allows for easier tracking and simpler pricing.