# CEM Graph

<figure><img src="https://2061063614-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2Fhhg8R1DHdqAcw98rFpY9%2Fuploads%2FYkDwUthPHZcqlBuHiVkq%2Fimage.png?alt=media&#x26;token=705909d8-60b2-46e4-9322-1f4bf426f160" alt=""><figcaption></figcaption></figure>

## **CEM Distribution Graph**

The **CEM Distribution Graph** in FireForge provides a visual representation of how different strategies perform across varying VIX levels, based on the **Custom Evaluation Metric (CEM)**. This graph is instrumental in helping users understand the relationship between market volatility and the effectiveness of their selected strategies.

### **What the CEM Distribution Graph Shows**

* **Average CEM Line (Blue Line)**: The blue line represents the average CEM value across strategies for each VIX level. For example, if a strategy spans VIX levels 12 to 14 and has a CEM of 5, that value contributes to the corresponding buckets (12, 13, and 14).
  * The average CEM for each VIX bucket is calculated by summing the CEMs of all strategies covering that VIX level and dividing by the number of strategies.
  * This line helps users identify how strategy performance trends as VIX levels fluctuate, revealing optimal volatility conditions for higher CEM values.
* **Strategy Count Bars (Gray Bars)**: The gray bars represent the number of strategies contributing to each VIX bucket. Taller bars indicate that more strategies have performed within that VIX range, which can signify high relevance or robustness in that specific market volatility level.
  * These bars give context to the blue CEM line by showing the volume of strategies at each VIX level. For instance, a high CEM value supported by many strategies in a VIX bucket implies that it may be a robust performance zone.

### **Why the CEM Distribution Graph Matters**

* **Identifying Optimal VIX Ranges**: By examining the CEM values across VIX levels, users can identify specific volatility ranges where strategies perform best. For example, if the blue line peaks around a VIX level of 15, it suggests that strategies generally achieve higher performance at moderate volatility levels.
* **Market Condition Adaptation**: The CEM Distribution Graph enables users to align their strategies with current or anticipated market conditions. If a user expects an increase in market volatility, they might focus on VIX ranges with high CEM values, thus selecting strategies likely to perform well under elevated VIX levels.
* **Selective Execution**: The graph supports selective strategy execution, allowing users to activate strategies only within the VIX levels where they have historically delivered superior performance. This can be especially useful for optimizing performance in volatile or calm markets.

### **Practical Applications**

* **Income Strategies in Low Volatility**: Users focused on steady income might look for VIX ranges where the CEM remains consistently high in calm market conditions. For example, if the CEM line is stable at VIX levels below 12, income traders might choose strategies that are effective in low-volatility environments.
* **Risk-Managed Growth in High Volatility**: Growth-oriented users, willing to trade in more volatile markets, can use the graph to find VIX levels where high CEM values indicate strong performance. These traders might select strategies that peak in performance around VIX levels of 20+, aligning with periods of higher implied volatility and potentially greater profit opportunities.
* **Building a Balanced Portfolio**: For users aiming to construct a balanced portfolio, the CEM Distribution Graph allows them to pick strategies effective across different VIX levels. By selecting strategies that perform well in low, moderate, and high VIX ranges, users can create a diversified portfolio that adapts to changing market conditions.

### **Example: Interpreting the CEM Distribution Graph**

* Suppose the CEM Distribution Graph shows a peak average CEM around VIX 15, with a steady decline in higher VIX ranges. This would suggest that the majority of high-CEM strategies in FireForge perform best in moderately volatile markets.
* A user looking to minimize risk might choose strategies that maintain stable CEM values across VIX ranges 10 to 20, while a growth-focused trader might explore strategies with the highest CEM values around 15, adjusting their trade timing to volatility peaks.

The CEM Distribution Graph is a valuable tool for users to visually gauge strategy performance across varying volatility environments, supporting data-driven decisions and aligning strategy selection with market conditions.
