Quant Mashup - John Orford
Momentum Premium Explanation [John Orford]
Often skewness is elbowed aside while Sharpe ratios are proffered to the Gods. Reminds me of jumping on the subway in Beijing. The S&P 1500 Momentum index has negative skew - more than you see with the S&P 500 - which accounts for higher returns, exactly the reason why value often beats
- 8 years ago, 7 Jul 2015, 09:05am -
China Market Analysis [John Orford]
The core of capitalism is its extremely democratic nature. The masses crush wily contrarians on a daily basis, The market can stay irrational longer than you can stay solvent Being correct in science however, is never democratic. One contrarian can commit mass killings amongst cherished beliefs.
- 8 years ago, 6 Jul 2015, 06:30am -
More on the Momentum++ Strategy [John Orford]
Glenn@AlignCapital mentioned how the seminal Momentum paper by Jegadeesh and Titman (1993) recommends forming and buying a momentum portfolio a week a part. In the cracks of their beseeching everyone to 'skip a week' and avoid wicked 'short term reversals' I accidentally grew the
- 8 years ago, 1 Jul 2015, 04:40am -
Improved Fractal Strategy [John Orford]
little scepticism is healthy, however, many of you know the feeling of being plagued non-stop by this awkward feeling. My level of scepticism is always bobbing around unhealthy levels. So it's nice when a guy like Ilya questions numbers and kicks the tyres a little. An opportunity to treble
- 8 years ago, 29 Jun 2015, 04:47am -
Lazy Backtesting Update [John Orford]
The S&P Dow Jones data source is now available to use in the Lazy Backtesting IDE. All manner of interesting investable strategies and asset classes, including volatility and retirement date targeting; Vix contango & backwardation and other quant-style strategies; which you can combine,
- 8 years ago, 28 Jun 2015, 03:53am -
Lazy PCA Site Update [John Orford]
There's been a bunch of feature suggestions since the last update to the Lazy PCA site. All the code is on Github, if you have a little Javascript experience, I will gladly walk you through it. Please keep shooting feature ideas over too though. You know when you're done with an app when
- 8 years ago, 25 Jun 2015, 12:45am -
A Conjecture Which Unifies Timing Strategies [John Orford]
When arrested in Asia (many countries, not everywhere) never step into the station. Once you put a foot inside, there's an unstoppable force pulling you deeper into the bowels of the judicial system. Conviction rates in Japan, Korea and China are 99%+. For comparison, conviction rates are in
- 8 years ago, 24 Jun 2015, 06:20am -
An Investable 'Investable Vix' Strategy [John Orford]
The ideas I sketch out every afternoon are fanciful sweet little things, decorated to perfection. Then someone ventures a bite and sometimes finds that that's all they are. Fanciful. Readers are fantastic guinea pigs! Ilya got in touch about this post about diversification and rightly mentioned
- 8 years ago, 23 Jun 2015, 04:09am -
Big O Notation in Finance [John Orford]
'O' is notation in mathematics which describes getting ever closer to something. For example, in computer science it describes the efficiency that algorithms chomp inputs and produce results. In statistics it's related to how probabilities converge. E.g. the probability of very large
- 8 years ago, 22 Jun 2015, 01:54am -
Fractal Investment Strategy [John Orford]
Martin Stisen got in touch after reading about the Mean Reversion + Momentum Strategy last week with an idea. Using the Hurst exponent to predict future returns. Quirky ideas are exciting. The Hurst exponent was originally found by observing how the Nile River waxed and waned over the years and now
- 8 years ago, 21 Jun 2015, 06:13pm -
Backtesting Methodology Problems [John Orford]
How many times have you bought a bottle of milk? And how many times have you bought a house? Which are you more comfortable with? It's no surprise that we make better repeated small decisions than the once in a lifetime big choices. When short horizon strategies make mistakes they dust
- 8 years ago, 19 Jun 2015, 10:22am -
Smoothness in Finance [John Orford]
Our eyes initially evolved underwater while our ancestors were fish and only later adapted to seeing things above. We are now terrible at seeing things when dunked under, however that's not the point. Water blocks out most of the red part of the electromagnetic spectrum, which is why we
- 8 years ago, 17 Jun 2015, 05:03am -
Value Growth Premium Explanation [John Orford]
Value has heavily underperformed growth over the last decade. But since 2000 and historically it has handily beaten growth. As well as investing in shininess (like Facebook and Google) what do you get for your money when investing in growth stocks? The main difference between growth and value is
- 8 years ago, 16 Jun 2015, 02:32am -
An Overview of Market (In)efficiency Research [John Orford]
Always outnumbered but never outgunned. That's how the saying goes. But this time you are outgunned and staring death squarely in the face. In the moments before your final reckoning, you think about your children, husband - and the impending invasion. This is it. And that is precisely what
- 8 years ago, 13 Jun 2015, 11:34pm -
Max Wait [John Orford]
There's a phrase or attitude in and around Java called pasrah. Maybe it's dying out only surviving in some out of the way places which haven't been totally submerged in bit and bytes. Pasrah means 'resignation'. Train doesn't come on time? Pasrah. Stuck in a humungous
- 8 years ago, 13 Jun 2015, 04:37am -
Lazy PCA Site [John Orford]
Lots of posts in the past week about breaking down time series returns into momentum and mean reversion. Vix Equity Momentum Mean Reversion + Momentum strategy Now you can PCA too! I have added an interface to the code I have been using and called it Lazy PCA. Try it out and let me know what you
- 8 years ago, 12 Jun 2015, 06:51am -
Mean Reversion + Momentum Strategy [John Orford]
Following on from my PCA posts (1, 2, 3) I decided to write a strategy based on them for the Lazy Backtesting IDE. Two combined together in fact. If momentum has been detected, go long when the last day's return is positive and vice versa. Do the opposite when mean reversion is detected. Plus,
- 8 years ago, 11 Jun 2015, 04:04pm -
PCA & Momentum [John Orford]
Check out the first and second posts in this series to get up to speed. This is a picture of AAPL's monthly returns over the last 3 years. It shows ever so slightly more momentum than mean reversion as the ellipse is pointing up right. In contrast to the previous equity and Vix pictures the
- 8 years ago, 10 Jun 2015, 01:08pm -
Equity through a PCA Lens [John Orford]
Last time I had a look at the Vix's returns plotted against each other with a quarter lag. Now I am doing the same with the S&P 500. Whereas the Vix's returns were mostly found in the bottom left corner and reflected positive skew, I promised equities would be in the top right and
- 8 years ago, 9 Jun 2015, 03:00am -
Quantifying Time [John Orford]
Quants sweat over time more than anything else. Calendars, holidays and when payments land are scrutinised over and over. I remember an infamous hedge fund manager making a stink over our inability to capture Middle Eastern weekends starting on Fridays and the trading week starting on Sundays. Or
- 8 years ago, 8 Jun 2015, 02:13am -
Inconsistancy in Finance [John Orford]
I love reading and listening to people who make finance sound like playing with Lego. Everything clicks together and is so self explanatory. Meanwhile, I am wracked by anxieties, because nothing I 'know' about finance really works consistently. Imagine buying a croissant at your local
- 8 years ago, 7 Jun 2015, 12:52pm -
Applying PCA to the Vix [John Orford]
The returns in the previous quarter (x axis) are plotted against those in the next quarter (y axis) and I fit an ellipse to the data. Every ellipse has two radii or 'semi-axes' which represent the two principal components of the data. PCs are 'idealised' axes which better fit or
- 8 years ago, 6 Jun 2015, 02:25pm -
Lazy Backtest IDE [John Orford]
Over the past weeks I have been weighing up trading strategies. I have identified two major issues which people always overlook. Firstly, performance consistency. Averaged results over long periods of time often paper over long periods of poor performance. Researchers report max drawdown, but I feel
- 8 years ago, 5 Jun 2015, 03:24am -
Realised Steady Vol [John Orford]
The Steady Vol strategy tries to keep your portfolio's returns stable while slowly accruing returns over the long term. To that end I used the Vix to predict vol over the next month in order to adjust exposure up or down and stabilise short term returns. Turns out realised vol based on the
- 8 years ago, 4 Jun 2015, 12:38am -
Financial Imprecision [John Orford]
I only started drinking coffee when I started working crazy hours. Not to keep awake but as an excuse to pop out of the office for a few minutes and suck in some fresh air. Either coffee or cigarettes, thank goodness not the latter. In any case, I recently read about a guy who is reverse engineering
- 8 years ago, 2 Jun 2015, 03:47am -
Dual Momentum Investigation [John Orford]
In science. Proper science. Scientists are told to report the investigations that lead nowhere. Why is this important? One. So people don't unknowingly waste time down the same dead and can learn from the experience of others. Two. When you count the dead ends, sometimes statistical tests
- 8 years ago, 31 May 2015, 05:37am -
Equally Weighted Portfolios [John Orford]
Old school German and Austrian professors operate on 'academic time'. When you are told to meet at 3, they really mean a quarter past. You wouldn't want to reverse the tables though. Better to be a quarter of an hour too early than too late. I never got the hang of academic time. Same
- 8 years ago, 30 May 2015, 02:18am -
Financial Real Time Data in Client Side Javascript [John Orford]
Few people that work in the financial world actually live in the now. Some live at the last month end; others at 't-1'. Only silicon, mad men and chattering Tweeters live on the edge. Following on from the Flow and Statelessness post, I used Lazy.js, a CORS proxy and the Markit On Demand
- 8 years ago, 29 May 2015, 03:13am -
A Statistical Interpretation of Black Scholes [John Orford]
I love the tingling sensation when some new idea or revelation becomes clear. Perhaps not 100% clear, but you get close enough that you can almost taste it. That happened to me when I read about the Pythagorean interpretation of special relativity. Nice to understand 20th century physics first in
- 8 years ago, 28 May 2015, 01:40am -
Why Steady Vol Works [John Orford]
Contrary to what people say every now and again, history never ends. Not like humans end with a monotonous beep out of a heart monitor. Life goes on, hearts keep thumping. When I was an English teacher in Germany. One of my students showed up for the first day of class. She was unemployed and the
- 8 years ago, 24 May 2015, 05:41am -
An Unfolding Finite Difference Algorithm in Javascript [John Orford]
very model's assumptions get thrown out the window as soon as things get really rocky. Every model is short vol. Even those for which getting volatility right is crucial! Take the binomial tree approach to pricing options for example. See my previous post here. From 'Paul Wilmott
- 8 years ago, 20 May 2015, 10:06pm -
Making Comparisons in Finance [John Orford]
There was a period not so long ago on a planet not so far when I lost all concept of value. I had lived in many countries in as many months and lost track of what anything was worth. Euros, USD, SGD, IDR and AUD became indistinguishable units of exchange, a means to an end, I handed over a fist of
- 8 years ago, 18 May 2015, 02:31pm -
Singular Value Diversification Strategy [John Orford]
Being a loser is an art. I am not interested in being a good loser, but in knowing when to quit. The art of quitting can be acquired after a little numerical analysis. (Not necessarily due to all the confusing linear algebra!) In the world of numerical solutions there is no correct answer. Knowing
- 8 years ago, 15 May 2015, 11:57pm -
Lazy Backtest IDE Update [John Orford]
Another week another Lazy Backtest IDE update. Now you can incorporate yield data into your strategies, oh, and also use it in your Sharpe ratio calculations. Also - no one likes little black boxes, right? No one! So, I included a link to download a CSV file of results. Meaning you can understand
- 8 years ago, 15 May 2015, 03:50am -
Skew & Inverse Vol Strategies Combined [John Orford]
I never plan long term. As I grow older my horizon has become shorter and shorter. This vexes my girlfriend. Naturally, I retort, my days on the planet reduce with every day lived. Our holidays are spent jumping from one town to another in Indonesia or China, nothing's booked more than a day or
- 8 years ago, 13 May 2015, 03:38am -
Quantifying Technical Analysis [John Orford]
I have disavowed myself from technical analysis. Life's too short. Similar to Saruman however, the lure of more power is drawing me perilously close to an ancient and dark evil. To paraphrase Nietzsche, When you take a long gaze into the financial blogosphere, the blogosphere also gazes back
- 8 years ago, 12 May 2015, 01:14am -
Comparison Between Low and Steady Vol Strategies [John Orford]
Dan Davies likened the Steady Vol strategy to a minimum volatility strategy, which came as a surprise, as perhaps even more surprising - it never occurred to me beforehand! For those not in the know, Steady Vol tries to keep volatility stable by inversely weighting the index over time by implied
- 8 years ago, 11 May 2015, 03:05am -
Cornish Fisher Strategy Discussion [John Orford]
A reader got in touch with me asking for more details on Peter Urbani's Cornish Fisher strategy. It's a pull-all-your-money-of-the-table strategy designed to avoid catastrophic losses and keep returns compounding smoothly over time. How do we think about potential catastrophic returns? By
- 8 years ago, 10 May 2015, 05:58am -
Steady Volatility Strategy [John Orford]
The art and skulduggery of finance is infused with uncertainty. So, how about we try to smooth volatility a little and see the consequences? The VIX predicts the volatility of the S&P 500 for the next thirty days. Our Steady Vol strategy takes the inverse of the current VIX and weighs our
- 8 years ago, 9 May 2015, 04:00am -
Financial Domain Specific Language [John Orford]
I once dated a poet. A published poet. She knew the nuances of language like few others. Then and since I wondered whether I could experience things, that I could never verbalise, as well as her. If you can dictate your inner life onto a page; into black and white; does it become a little clearer?
- 8 years ago, 8 May 2015, 03:22am -
Sharpe Ratio Redux [John Orford]
My favourite restaurant in Singapore is near City Hall. Nalan's serves up the tastiest vegetarian food going. Every couple of weeks I go back and find a new and interesting dish. At lunch today my girlfriend ordered Manchurian cauliflower. Deep fried cauliflower in a Hokkien Chinese sauce which
- 8 years ago, 6 May 2015, 10:23pm -
Cornish Fisher Timing Strategy Video [John Orford]
Peter Urbani sent me a timing strategy based on the Cornish Fisher expansion. The world of cumulants is new and fascinating. I took the liberty to code up the strategy using the Backtesting IDE. The contrast between using spreadsheets and code for this type of strategy is stark. Download the code
- 8 years ago, 6 May 2015, 06:18am -
Skew Strategy Update [John Orford]
The Sentimental Skew Strategy is my test bench for the Backtesting IDE. I have documented the building of the strategy (while building the IDE). The strategy uses the CBOE implied skew index as an indicator to long or short the S&P 500. It was also instructive to understand the temptations
- 9 years ago, 30 Apr 2015, 06:11am -
Lazy Backtesting Video [John Orford]
Here's an overview of my new Lazy Backtesting tool. Yes I have the flu, but no, that's not too far away from how I usually talk. Still a few missing features, but it's not a bad return for a few hours work. Let me know what you think, john.orford@gmail.com.
- 9 years ago, 22 Apr 2015, 05:46am -
Extreme Events, Statistics & Risk Mgmt [John Orford]
Singapore has some nice perks. One of them is the variety of books about Indonesia to browse in the library (I am an Indophile). While spending an afternoon reading about the minutiae of Sumatran history in the 19th century, I read a curious first hand account from a Dutchman in North Sumatra. I
- 9 years ago, 21 Apr 2015, 03:56am -
Online Backtesting Framework [John Orford]
I have combined my recent interests in backtesting and lazy data structures into the "Lazy Backtesting" web app. Pull data straight from Quandl; have it cleaned auto-magically; and code up your strategy's trading rules. It's clean and simple.
- 9 years ago, 20 Apr 2015, 01:27pm -
Skew Strategy with Changing Sentiments [John Orford]
[Part of a series on timing the S&P 500 by using the implied skew index, begin here] Over the previous days, the skew strategy has had improving, but alas, abominable Sharpe ratios. I have finally stumbled upon a recipe which beats the S&P 500 Sharpe over the last quarter of a century (and a
- 9 years ago, 20 Apr 2015, 02:15am -
Skew Strategy with a Sliding Scale [John Orford]
Check out the previous post in this blog for a blow by blow account of building strategy around skewness (part 1). Up until now the strategy knowed back and forth between buying and selling 100% as the skew became more or less favourable. Now, we add a little nuance. The implied skew index is a
- 9 years ago, 19 Apr 2015, 07:45am -
Implied Skew Strategy [John Orford]
Previously, I checked whether historical skewness was a good indicator to buy and sell the S&P 500. My backtesting framework can now use the implied skew index as an indicator to buy or sell. Now, the strategy buys the S&P 500 if the implied skew index has dropped day over day and vice
- 9 years ago, 17 Apr 2015, 10:51am -
Lazy Evaluation in Finance [John Orford]
You have the coding chops to automate your job; savvy to communicate a new easier solution to your client; or come up with that smart equation which neatly cuts through the bullshit. You're smart enough not to have to work needlessly hard. There's an idea in computer science call
- 9 years ago, 10 Apr 2015, 12:57am -