What is the financial significance of this metric?
The Cyberhedge Cyber Governance Indices are the first-ever market-based proof that companies with good cyber governance outperform their peers. This groundbreaking Indices are derived from Cyberhedge’s proprietary ranking of corporate cyber governance. When you want an objective measure of cyber risk in $ or €, trust our real-world financial modeling experience to provide the most tested and proven estimate on the market. The Indices serve as ongoing proof of the Cyberhedge ranking methodology so you can be confident using it in your financial reporting, budget allocations and cyber insurance pricing.
How is Cyberhedge valuing risk differently?
To use a financial markets metaphor: if the third-party cyber-risk ratings companies provide the equivalent of market data, Cyberhedge has developed the “Black-Scholes” risk pricing model which incorporates that third-party data — in addition to a wider set of fundamental and behavioral economic data — to determine the economic value of cyber risk in a company, rather than using simply a list of cyber data that compares one company to another to determine a rating’.
In other words, without the Cyberhedge pricing model, there is no way to determine the financial significance of cyber data by itself.
What is the statistical proof of the data set?
Each month, Cyberhedge rates more than 5,000 publicly traded companies on cyber governance. The top 20 percent receive our 5-star rating. The worst 20 percent receive only one star. The results are then independently verified by a leading publisher of stock market indices that uses these ratings to compute 5-star and 1-star index portfolios in three global markets. The continued outperformance of 5-star companies demonstrates that Cyberhedge’s groundbreaking data science is robust and trustworthy across all major developed markets.
A star rating represents what Cyberhedge refers to as a company’s Return on Cyber Assets™ metric or RoCA™ metric. This is a proprietary financial metric for the future economy.
The positive performance of this index shows that our model for implied future value of cyber risk has correctly predicted the actual realized value for the majority of companies since the end of 2016.
What should you look for when tracking the risk?
Monitor the long-term performance of 5-star vs. 1-star companies. This serves as constant verification of the accuracy of our assessment of cyber’s impact on enterprise value in financial terms.
What are the limitations / constraints to our metrics?
If using the benchmark for fund management purposes, the large number of companies in the benchmark might lead to fund performance lagging the index due to slippage and trading costs.
What are the financial benefits of this metric?
- For portfolio managers:
- First, improve your portfolio management performance by ‘hedging out’ cyber risk (i. e. using a Cyberhedge).
- Second, increase revenue by creating an ESG fund for cyber governance based on a benchmark with more than three years of independently verified performance.
- For company boards:
- Know the financial impact of the company’s cyber governance. Lower-ranked companies are putting shareholders at greater risk of loss due to poor cyber governance. A 1-star company is at much greater risk of shareholder value loss than a 5-star company.
- Track the company’s cyber governance performance in financial terms and see when the company is at greater risk of loss.