Quant Mashup - Beyond Passive What Trend Following Actually Adds to a Risk-Premia Core [Beyond Passive]Combine a three-asset risk-premia portfolio with a trend-following program and the Sharpe ratio jumps from 1.1 to nearly 1.5. It looks like free diversification. But a trend program is long equities, bonds and metals — and a risk-premia core is equities, bonds and metals. So before we accept the(...) Trend following (2/4): Sector-by-sector replication [Beyond Passive]Part 1 left a gap. Regressing the synthetic backtrack against the whole universe at once recovered the program in ten contracts at a Sharpe of 0.84, against the program’s 1.03 — a fifth of a Sharpe unaccounted for. I argued there that the gap lived in the regression’s blindness to the(...) Trend following (1/4): Replicating your own program [Beyond Passive]The published literature on trend-following replication treats the program being copied as a black box. When the program is your own, this is the wrong way around — and fixing it changes the result more than I expected. The story of trend following as a systematic strategy reaches back to the(...) An Active Hedge for the EUR Investor [Beyond Passive]Static currency hedging is a coin toss with predictable losers. The investor either pays the interest-rate differential as carry every month for years, or accepts the full drawdown when the dollar reverses. A trend-following forecast on EUR/USD, combined with carry treated honestly as a cost rather(...) The Currency You Didn’t Choose [Beyond Passive]Run the same three-asset strategy out of New York and out of Frankfurt. The American gets Sharpe 0.97 and a 22% drawdown. The European, holding identical positions but spending in euros, gets Sharpe 0.65 and a 45% drawdown. The trades are the same. The difference is a currency position the European(...) Where Risk Parity Hurts: A 58-Year Audit of Tails and Drawdowns [Beyond Passive]The previous article extended the inverse-volatility allocation across SPY, TLT, and GLD back to 1968 using a synthetic price construction. Over fifty-eight years the strategy delivered a CAGR of 7.1%, volatility of 7.5%, a Sharpe of 0.97, and a maximum drawdown of 22%. The volatility-targeting(...) Revisiting Beyond 60/40: Five Decades of Risk-Weighted Allocation [Beyond Passive]In Beyond 60/40 I argued that the classic balanced portfolio rests on an assumption — that stocks and bonds will hedge each other — and that the assumption fails when the macroeconomic regime changes. The argument was built on the post-2005 ETF era, the only window where clean real-price data(...) Sixty-four years of TLT: reconstructing the bond ETF everyone owns [Beyond Passive]A long-bond ETF sits in almost every balanced portfolio. Ours included — TLT is one of the three core holdings in the risk-parity base of our portfolio architecture. And yet when TLT lost 48% between 2020 and 2024, most holders experienced it as a shock. It should not have been. The mechanics were(...) When Correlations Fail: A Bayesian Approach to Sizing Sparse Overlays [Beyond Passive]A portfolio of seasonal strategies presents a problem that modern portfolio theory was not designed for. Most of these strategies are active fewer than sixty days per year. Many pairs share zero overlapping observations. The covariance matrix — the standard tool for combining return streams —(...) Two Calendar Effects at the Month Boundary [Beyond Passive]This article examines two distinct effects that share the same calendar window and the same tickers. The first is a pure bond seasonality: TLT tends to weaken in the first week of each month and rally in the last few days, regardless of what equities do. The second is a conditioned reversal trade:(...) Fridays for Gold, Tuesdays for Stocks: Two Sides of the Same Fear Cycle [Beyond Passive]The previous article showed that gold drifts higher on Fridays — specifically when the VIX term structure compresses into the extended fear zone, driven by institutional risk managers adding weekend protection on Thursday afternoons. The same day-of-week chart that opened that article contains a(...) The Friday Gold Trade: A Conditional Edge [Beyond Passive]Gold drifts higher on Fridays. The effect is statistically significant, it has persisted for decades, and most traders who know about it trade it unconditionally. The useful question is not whether this is true but under which market conditions it is true — and the answer changes everything about(...) The Calendar Ensemble: Building an Event-Driven Alpha Overlay [Beyond Passive]In the previous article, we established that the Sharpe ratio is the single most important number in portfolio construction. Variance drag scales with the square of volatility, which means a high-Sharpe portfolio can tolerate leverage, survive decumulation, and compound wealth far more efficiently(...)