Go Long on England, Brazil for World Cup: Banks
The popularity of NCAA Final Four brackets on Wall Street is well known, mixing the trading floor's love of gambling and sports. But with the World Cup just around the corner, PCs and TV monitors in global financial centers will be tuned to all the latest from South Africa.
And for those looking for an edge in office pools, a couple of investment banks – UBS and JPMorgan Chase – have turned their analysis expertise to predicting what country will lift the Jules Rimet Cup.
Right now, odds makers are putting five-time champion Brazil joint favorite with Spain, which won the European Championship in 2008. Honduras, facing Spain, Chile and Switzerland in its qualifying group, have odds of 1000-1 on some betting sites.
According to UBS, Brazil will add to its winning heritage and lift the trophy again. JPMorgan agrees that Brazil is the strongest team in the tournament, but due to strength of schedule it tips England to win the World Cup a second time.
'Quant' Handicapping Favors England
JPMorgan used quantitative analysis, or "quant analysis" to examine each potential match mathematically to predict winners.
Looking at "the actual fixtures determined by the schedule, we believe England will be the winner of the 2010 World Cup," the investment bank said.
England's qualifying group consists of Algeria, Slovenia and the United States. Moving to the knock-out stages, JPMorgan predicts England to beat Serbia, France and The Netherlands on penalties on route to the final match.
England should triumph again on penalties over Spain, the bank concluded.
Anyone looking to hedge bets should note that Brazil, England and Spain – the three favorites – have a combined 52.5 percent probability of triumphing.
Past Performance Points to Brazil
UBS' model successfully predicted Italy to win the World Cup in 2006 and this year's numbers give Brazil the best chance of winning the title in Johannesburg, at 22 percent, followed by Germany at 18 percent.
The three factors UBS examined were past performance, whether or not a team is the host nation and "an objective quantitative measure that assesses the strength of each team three months before the start of the World Cup."
It uses Elo ratings, which were developed by the Hungarian-American Physicist Arpad Elo to rank chess players and "the ratings have been used in other sports like tennis but especially in football, where they have proven to be a better indicator and forecasting tool for determining the objective strength of teams than the FIFA ranking system," UBS said.
It gives Spain and JPMorgan favorite England just a 4 percent chance of winning, as "both teams have tended to be underachievers when it comes to the World Cup."
Surprises semifinalists could include Chile, Portugal, South Korea, the US or Australia, "which have rather strong teams, according to their Elo rankings," UBS concluded.