Quant Mashup - Quant Dare
AI case study: Long/Short strategy [Quant Dare]
In today’s post we will be using AI to improve a module of the Alternative Data-Driven Investment (ADDI) strategy developed by ETS Asset Management Factory, which is an automatic Long – Short investment strategy that aims to obtain stable performance de-correlated from the market and with a
- 6 months ago, 2 Oct 2023, 11:00pm -
The Powerful Advantages of Investing in Conglomerate Stocks [Quant Dare]
The conventional wisdom suggests that by spreading your investments across a wide range of assets, you can mitigate risk and achieve greater long returns. In this article, we will explore the diversification benefits of conglomerate stocks and why they can be valuable additions to a stock portfolio.
- 9 months ago, 14 Jul 2023, 01:27am -
Clustering Forex Market [Quant Dare]
The Forex Market is the global marketplace where currencies are bought and sold. It is the largest and most liquid financial market in the world, with trillions of dollars traded daily. A currency pair is an asset composed of two currencies traded on the financial market. Its price represents the
- 9 months ago, 5 Jul 2023, 04:10am -
Financial Statements Effect [Quant Dare]
Effect J. González 28/06/2023 No Comments In a previous post we saw how avoiding being in the market during Earnings publications could be a zero-sum game in the long run. In this post our purpose is to study if it is possible to take advantage of the effect in the stock prices based on the
- 9 months ago, 30 Jun 2023, 05:30pm -
Linking Impact in Divergence Attribution II [Quant Dare]
In my post Linking Impact in Divergence Attribution I explained the need to use linking algorithms in order to aggregate single-period returns. I ended my exposition by setting out the formula for adjusted returns using Andrew Frongello’s algorithms (arguably the ones with best qualities in the
- 10 months ago, 16 Jun 2023, 03:30am -
Ranking aggregation using genetic algorithms [Quant Dare]
In a previous post, we saw how to use genetic algorithms to make implicit optimizations. We used that technique to construct a portfolio, but in a very simple manner: we were just limited to 5 stocks, and we were looking for a constant weight for each of them, assuming daily rebalancing. Today, we
- 11 months ago, 19 May 2023, 12:30am -
Financial Machine Learning pitfalls: it’s levioosa, not leviosaa [Quant Dare]
Financial data is one of kind: we think is non-stationary, and the samples are non-iid, which means one cannot simply apply common machine learning techniques. In this post, we briefly cover some pitfalls when using machine learning algorithms in a financial context. 1. Harry Potter and the model
- 1 year ago, 19 Apr 2023, 09:58pm -
EURUSD impact in 2022 [Quant Dare]
The EURUSD currency pair has been one of the most closely watched and traded pairs in the forex market for years. Its movements can have a significant impact on the global economy and particular investments. In 2022, we witnessed a significant moment in the history of the global currency market. In
- 1 year ago, 5 Apr 2023, 07:18pm -
Generative Adversarial Networks: A rivalry that strengthens [Quant Dare]
How does ChatGPT work? What is behind deep fake images of celebrities? How do we deal with the lack of data in finance? All these issues have in common the same underlying concept; they are based on generative models. Generative models are algorithms that create new instances of data that mimic the
- 1 year ago, 23 Mar 2023, 02:16am -
Risk contribution in portfolio management [Quant Dare]
We usually compute return attribution to know how much each asset contributes to portfolio return. This calculation is quite easy because return formula is linear and sub-additive. In that context, one can split the whole portfolio return in smaller parts corresponding to each asset. However,
- 1 year ago, 8 Mar 2023, 08:31pm -
On the origins of Bayesian statistics [Quant Dare]
Bayesian statistics is a powerful field of mathematics that has wide-ranging applications in many fields, including finance, medical research, and information technology. It allows us to combine prior beliefs with evidence to obtain new posterior beliefs, thereby enabling us to make more informed
- 1 year ago, 23 Feb 2023, 07:46am -
Yield curve modeling [Quant Dare]
The financial industry is constantly searching for models that can help accurately predict the behavior of interest rates. In this article we will explore one of the most widely used models for this purpose, the Nelson-Siegel (NS) model. What is the Nelson-Siegel Model? The NS model is a yield curve
- 1 year ago, 15 Feb 2023, 04:01pm -
Annualizing volatility [Quant Dare]
Volatility is one of the best known and most widely used concepts in finance. Given a price series of a financial instrument, its volatility is defined as the dispersion of the returns. This measure is used to compare securities in terms of risk. But in order to compare, sometimes it is necessary to
- 1 year ago, 29 Jan 2023, 08:53pm -
How earnings reports affect stocks? [Quant Dare]
Surely everyone has suffered/enjoyed a sudden movement of a stock in a portfolio when the underlying company has reported earnings. Now that the earnings report season is starting you may wonder if there exists a way to avoid those shocks in the stocks without missing performance in your
- 1 year ago, 19 Jan 2023, 01:47pm -
Building a sector rotation strategy based on Fed’s interest rate policy [Quant Dare]
The Fed’s interest rate actions, which have been a topic of much discussion recently, can be very valuable information when making investment decisions. In particular, this post shows how to improve our sector allocation following the Fed’s announcements. Introduction The Federal Reserve System
- 1 year ago, 14 Jan 2023, 10:31am -
Doubling Down: Double Deep Q-networks for trading [Quant Dare]
In previous posts, we have seen the basic RL algorithm, Deep Q learning (DQN). We have also seen it applied, using Neural Networks as the Agent, to an investment strategy. We finally even used it for a cryptocurrency investment strategy. This time, we will implement a slightly more advanced
- 1 year ago, 7 Dec 2022, 10:10am -
Why bother with unbiasedness? [Quant Dare]
For every quantity to be estimated (estimand), there’s a plethora of ways to estimate it (estimators). This raises the question of what properties we should be looking for so as to make a sensible choice. Often highlighted as one of such properties is unbiasedness, which we will discuss below with
- 1 year ago, 25 Nov 2022, 09:43am -
Beyond linear II: the Unscented Kalman Filter [Quant Dare]
The Unscented Kalman Filter allows to deal with nonlinear systems in a different way than the Extended Kalman Filter. Find how it works in this post. This is not the first time we talk about the Kalman Filter (and it probably won’t be the last); I recommend you check this and this posts to
- 1 year ago, 16 Nov 2022, 09:16pm -
MOIC: Investing Holy Grail [Quant Dare]
Many investors are looking for the holy grail of investing. They all want a magic formula that tells them which stocks to buy, and which ones to sell. But experienced investors know that there is no such a thing. I was convinced of it… until I discovered the MOIC formula. MOIC Multiple on Invested
- 1 year ago, 8 Nov 2022, 09:17pm -
Causality: interest rates and fixed income assets [Quant Dare]
The blog has previously addressed interest rates in a post that splits the yield rate curve into three relevant components. This time this post tries to identify the influence of interest rates on fixed income assets by using the Granger causality test. Interest rates obviously have a strong impact
- 1 year ago, 19 Oct 2022, 11:15am -
Sell in May and go away… Just won’t go away [Quant Dare]
In this post we are going to revisit (check previous post) the catchy market maxim ”sell in May and go away”. After 2 bear markets in the last 3 years and yet another red September, once again, here I am in October, wishing I had sold in May. Let’s simulate the different variations of this
- 1 year ago, 13 Oct 2022, 01:24am -
Analyzing U.S. election cycle seasonality in the S&P 500 [Quant Dare]
Everyone is aware of the importance of the U.S. elections and we take it for granted that, like many other things, financial markets will end up being affected in some way. But have you ever wondered if there is any seasonality throughout those elections that we can take advantage of when making
- 1 year ago, 14 Sep 2022, 11:26am -
Self-organizing maps for an investment strategy [Quant Dare]
In a previous post, we explained how self-organizing maps work, with a very simple example. In this post, we will explain how to implement self-organizing maps for an investment strategy. Last time, we gave a simple example with a map of colors to explain in detail how self-organizing maps (SOM)
- 1 year ago, 8 Sep 2022, 10:01am -
Debt/Equity vs Debt/EBITDA [Quant Dare]
We all know that the more indebted a company is, the greater the risk of bankruptcy. But what is really the best way to measure this indebtedness? In this post we will compare two of the best known leverage ratios: Debt/Equity (Debt-to-Equity) and Net Debt/EBITDA (Net Debt-to-EBITDA). Leverage
- 1 year ago, 8 Jul 2022, 09:31pm -
On the origins of some stochastic processes [Quant Dare]
Stochastic processes play a key role in modelling the behavior over time of many financial assets. These mathematical descriptions of reality help making investment decisions. They can be used to price stock market options, make Monte Carlo simulations or define probabilities of expected returns,
- 1 year ago, 5 Jul 2022, 11:13am -
From theory to practice: Challenging the market using MPT-based investment strategy [Quant Dare]
In order to develop complex strategies for a successful asset allocation, portfolio managers need profound knowledge on the field. Apparently, this is the key to be able to consistently beat the market. In this post we will learn how to design investment strategy based in Modern Portfolio Theory in
- 1 year ago, 22 Jun 2022, 11:02am -
Optimization problems with non-continuous restrictions [Quant Dare]
In the financial field, managers usually take advantage of the great development in machine learning techniques to improve their models and get the best performance of their portfolios. These techniques may be clustering, neural networks, or even a more traditional one as optimization algorithms. In
- 1 year ago, 15 Jun 2022, 12:07pm -
Hierarchical clustering: explanation and classification [Quant Dare]
Clustering algorithms are one of the main techniques in the field of unsupervised learning. In the machine learning context, we understand by unsupervised learning the process of analyzing and identifying patterns in unlabeled datasets. Unsupervised learning algorithms observe similarities and
- 1 year ago, 25 May 2022, 09:45pm -
How to Increase Factor Definition Robustness [Quant Dare]
When dealing with factors information is important to go to the detail and get insight about how the factor is built. Ratios combination improves robustness. When we read papers or studies about the Factor Premium of different factors we almost always come across with the problem of how to define
- 1 year ago, 19 May 2022, 02:56am -
Achieving a well-diversified portfolio based on Graph Theory [Quant Dare]
Graph Theory is widely used in almost every area of interest for visualization or analysis purposes but, for some reason, it is not usually applied in finance. Why not trying to take advantage of its potential in portfolio management? Introduction Current uncertainty is causing very pronounced
- 1 year ago, 5 May 2022, 11:58am -
Random Forest on Financial Ratios as an Investment Strategy [Quant Dare]
Random Forests are widely used Machine Learning algorithms. In finance, certain financial ratios are used to try and predict whether or not a company will outperform the market. Can we use the random forest on financial ratios to articulate an investment strategy which outperforms a buy and hold
- 1 year ago, 29 Apr 2022, 04:16am -
Measuring uncertainty in time series data [Quant Dare]
In financial time series it is very common to make predictions of single points such as expected future prices or returns. But is there any other way of adding more information in our forecasts? In today’s post we will be making probabilistic forecasts for time series data using recurrent neural
- 2 years ago, 21 Apr 2022, 09:51pm -
Transformers: is attention all we need in finance? Part II [Quant Dare]
Using PyTorch to test the attention mechanism applied to time series forecasting. Introduction In the previous post we saw what Transformers are and how they work in its basic form. In this post we will develop one possible way to adapt the original design, which was created [1] to target NLP tasks,
- 2 years ago, 6 Apr 2022, 09:16pm -
Mutual Fund Returns vs Investor Returns [Quant Dare]
It is well known that we investors are full of biases when making investment decisions (loss-aversion, trend-chasing, …), but what is the real impact of these biases on our performance? In this post we will try to answer this question quantitatively, and we will also compare the average investor
- 2 years ago, 31 Mar 2022, 11:49am -
Hedging cash flows [Quant Dare]
Currency hedging is a powerful tool, offering foreign investors access to new opportunities, providing returns very similar to those of local ones. However, it also has some disadvantages to consider. In this post we will explain how passive hedging could transform the original currency risk problem
- 2 years ago, 26 Mar 2022, 11:11am -
Predicting NASDAQ price using news [Quant Dare]
News have a huge impact in the global stock market, but it’s impossible even for professionals to be constantly updated. One can ask itself: is there any way to automate this procedure? Recently in this blog we have covered the topic of summarizing news by applying the TF-IDF algorithm, which is a
- 2 years ago, 18 Mar 2022, 09:34pm -
Black-Litterman Sector Allocation [Quant Dare]
Incorporating market expectations and forecasts into asset allocation used to be more of an art than an analytical process in the 80s. In this post we will review Fisher Black’s elegant and very practical solution to portfolio construction, going through a sector allocation example. The Black
- 2 years ago, 23 Feb 2022, 10:21am -
Linking Impact in Divergence Attribution [Quant Dare]
The performance of a portfolio during a single period can be attributed to a set of factors, but in order to aggregate those daily factors and get a breakdown of the portfolio’s total performance during a multi-period (for example 1Y), we have to make use of an smoothing algorithm. This is due to
- 2 years ago, 4 Feb 2022, 10:12am -
Analyzing S&P 500 Constituents Returns by Sector [Quant Dare]
In a previous post we analyzed the performance of US Sectors using SPDR Sector ETFs. Now, let’s dive into the analysis of sectors using S&P 500 components and some measures of its performance. Before going any further, it is important to note that there are some differences between the Sector
- 2 years ago, 12 Jan 2022, 11:19am -
Self-organizing maps for clustering [Quant Dare]
We can use self-organizing maps for clustering data, trained in an unsupervised way. Let’s see how. This week we are going back to basics, as we will see one of the first successfully deployed machine learning algorithms: self-organizing maps (SOM, sometimes also called Kohonen maps). This is an
- 2 years ago, 15 Dec 2021, 10:10am -
Volatilities and Correlations of Cross Rates, a Geometrical Understanding [Quant Dare]
In this post we will show how the properties of a triangle can be used to intuitively obtain insights about the volatilities and correlations of currency pairs. Once the dominant branch of mathematics, geometry plays now a secondary role. However, its graphical arguments still seem to be better
- 2 years ago, 1 Dec 2021, 11:14pm -
Transformers: is attention all we need in finance? Part I [Quant Dare]
In recent years we’ve seen an increase in the accuracy of NLP models through the use of Transformers. These models rely on the attention mechanism to identify key features but, how do they work? And most importantly, can we somehow use them in finance? Transformers The transformer is a relatively
- 2 years ago, 24 Nov 2021, 10:05am -
Will the Fed ruin my S&P500 investments? [Quant Dare]
It is widely known that each time the Fed gives an announcement, the whole investing world is watching. So, one may wonder if those events can ruin their investments. Recently in this blog, we have studied a set of variables which might move the market. From this post one can extract that Fed
- 2 years ago, 27 Oct 2021, 10:33am -
Markov chain as market predictor [Quant Dare]
Markov chains are well-known in the world of both mathematics and finance. It is common to describe the market as a group of states, for instance bull and bear. From these two there are different ways to create a great deal of other states. If you want to establish the transition relationship
- 2 years ago, 20 Oct 2021, 10:10am -
Factor contribution [Quant Dare]
In this post we are going to examine two alternative methods of calculating the factor contribution to the performance of an equity portfolio. To evaluate the performance of an equity portfolio regarding the exposure to risk factors, it is common to calculate the contribution of each factor to the
- 2 years ago, 22 Sep 2021, 11:30am -
Optimizing implicitly using genetic algorithms [Quant Dare]
Sometimes it is too costly, even impossible, to explicitly optimize an equation. Today we will see how to optimize implicitly using genetic algorithms. Sometimes, in finance as well as in other aspects of life, a problem presents itself in the most clear of terms: an explicit equation which we must
- 2 years ago, 10 Sep 2021, 11:49am -
Purchasing Power Parity [Quant Dare]
Purchasing Power Parity (PPP) is a well-known measure used to compare the currencies of different countries in terms of price levels. So, in this post, we are going to explain PPP and study, through an example, its relation with the currency pairs. PPP is based on the law of one price (LOOP). For
- 2 years ago, 1 Sep 2021, 10:49am -
Beyond linear: the Extended Kalman Filter [Quant Dare]
Although linear systems are pretty convenient at many levels, many real world applications cannot rely in this assumption. The Extended Kalman Filter can deal with these nonlinearities in a simple way. Learn how in this post. Introduction In the 1960s, Rufold E. Kalman codeveloped one of the most
- 2 years ago, 21 Jul 2021, 03:54am -
The risk of investing: An exploration on SPDR Sector ETFs [Quant Dare]
We will examine the relationship between annual returns and largest annual drop. Let’s use some well known Select Sector SPDRs and the SPDR S&P 500 Trust (SPY). Using prices from 1999-01-01 to 2021-06-30 we calculate the annual returns and the biggest drop for each year. For example, if we
- 2 years ago, 15 Jul 2021, 10:00am -
Improving crypto investing with Reinforcement Learning [Quant Dare]
Cryptocurrencies are a hot topic in the investing world, but is it possible to create an investment methodology combining modern Reinforcement Learning with classical indicators? Along this blog we have covered topics such as how to automate cryptocurrencies investment or whether reinforcement
- 2 years ago, 23 Jun 2021, 11:10am -