September 18, 2012 – Note Popularity and Lending Club investment strategy (Part 2)

This week, we’ll be taking a beginning look at the correlation (or lack thereof) between note funding time and defaults. Below are two charts that plot the entirety of the notes issued in 2010 in this context.

Chart 1: # Days in Funding (X) vs Number of Investors (Y) – All notes issued.

Chart 2: # Days in Funding (X) vs Number of Investors (Y) – Defaults only.

In terms of graphical quick check, it appears that there is no correlation between Days in funding or Number of investors vs defaults. This can be checked by looking for an overall pattern change or specific/isolated density change between the charts above. Since the charts are pretty much exhibiting an identical pattern, but of course with less points on the default chart, there probably is no correlation to be found here. What does a chart that correlates or exhibits a pattern look like then? Here is an example:

Chart 3 – Amount Funding (Y) vs Days in Funding (X) – All notes issued 2010.

This is a chart of days in Funding vs total amount funded for all notes in 2010. One would expect that higher amount notes take longer to fund and would generally require more investors. Generally speaking, this is true. One can see that notes between 20-25k have a high proportion of their notes taking approximately 10-15 days to fund. Lower amount notes (<5k) usually don’t take longer than 15 days to fund.

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