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Quantocracy’s Daily Wrap for 11/11/2021

This is a summary of links featured on Quantocracy on Thursday, 11/11/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Reddit for Fun and Profit (part 2) [Alpha Scientist]

    In the prior post Tracking Posts on WallStreetBets – Part I, we demonstrated how relatively easy it is to extract reddit activities related to a given stock ticker – in their raw form. If you haven't already read that post, you may want to take a moment to skim that article. In this post, we are going to take the next obvious step: aggregating the raw results into a meaningful timeseries
  • Portfolio Diversification Via Hierarchical Clustering [Machine Learning Applied]

    In this article, we cluster stock price time series with hierarchical clustering and Euclidean, correlation, and Jensen-Shannon distances to answer two questions regarding portfolio diversification. How diversified is a given portfolio? How can a diversified portfolio be constructed? Procedure For the Euclidean distance, we follow the first 3 steps articulated in Portfolio Diversification Via
  • The Vanishing Illiquidity Premium [Alpha Architect]

    Liquiditythe ability to buy and sell significant quantities of a given asset quickly, at low cost, and without a major price concessionis valuable to investors. Therefore, they demand a premium as compensation for the greater risks and costs of investing in less-liquid securities. For example, liquidity risk partly explains the equity risk premiumthe average transaction costs on stock
  • Webinar: Considerations For Combining Models [Quantifiable Edges]

    Date and time: Thursday 11/11/2021 at 4:15pm EST & Saturday 11/13/2021 at 11:00am EST Duration: 30-40 minutes + Q&A At Capital Advisors 360, I manage some composite portfolios that include several different models I have developed over the years. Using a couple of the models I trade as examples, I will share several of the factors I consider when determining what models are likely to work
  • Rolling Returns for the SP-500 [Alvarez Quant Trading]

    I just got back from a long vacation in Iceland (highly recommend visiting). As usual, when people discover what I do, they ask me about the markets. Several people were worried that the markets are too high. Then I read that the 20-year return of the SPX from 2001 to 2020 was way below the average 20-year return. My thinking was how could the massive run since 2009 not have gotten us above the
  • How Crazy is the Current Market? Not that Crazy. [Alpha Architect]

    Eric Balchunas had a recent tweet that I found fascinating. Erics tweet merely captures the tip of the iceberg with respect to the current market environment, which certainly feels bubbly. 1 The gist of the tweet is that $META, which is an ETF from our friends over at Roundhill Investments, has gained a substantial level of new assets because investors are confusing the ETF with the name

Quantocracy’s Daily Wrap for 11/10/2021

This is a summary of links featured on Quantocracy on Wednesday, 11/10/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Understanding Equities Data [Quant Start]

    In this brief tutorial we will take a look at the different aspects of end-of-day equities data. We will develop an understanding of what the Open, High, Low and Close (OHLC) prices mean, as well as discuss the traded Volume. We will look at how a typical Adjusted Close price is calculated and the effects that stock splits, dividends and rights offerings have on our data and why they are

Quantocracy’s Daily Wrap for 11/08/2021

This is a summary of links featured on Quantocracy on Monday, 11/08/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Mirage of Direct Indexing [Factor Research]

    Direct indexing is one of the growth areas in the asset management industry However, direct indexing represents active management, specifically an inferior approach to it Given the poor track record of active management, most investors should avoid pursuing this INTRODUCTION Direct indexing is hot. In October 2020, Morgan Stanley bought the asset manager Eaton Vance primarily for its direct
  • A Complete System for New Traders: Trading without a Stop Loss [Raposa Trade]

    Risk control is absolutely crucial for traders. The first rule of trading is to stay in the game. The humble stop loss is the bread and butter for traders trying to control their risk. But what if I told you the stop loss wasnt needed? What if you could control your risk while also increasing your returns? To do this, well introduce a new concept: continuous trading. This will be added to
  • US Funds Have Surprisingly Large International Exposure [Alpha Architect]

    Did you know that the percentage of foreign sales of the FTSE 100 is 76% and 43% for the SP500? This study investigates the power of indirect international exposure, that is international exposure through holdings of domestic stocks. The authors ask the following: What is the indirect international exposure of domestic mutual funds? Is the indirect international exposure associated with fund

Quantocracy’s Daily Wrap for 11/04/2021

This is a summary of links featured on Quantocracy on Thursday, 11/04/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Longest Winning Streak for Bitcoin [Quant at Risk]

    In the previous article Estimating Probability of Bitcoin Pullback in its Bullish Market we touched an interesting point worth exploring a bit further. Namely, the probability of Bitcoin close-price closing each day higher than a day ago days in a row. We had seen that in July 2021 Bitcoin moved and closed higher 10x in a row. We showed how to calculate the probability of a pullback in Bitcoin
  • New Site: Portfolio Diversification Via K-means [Machine Learning Applied]

    We use the K-means algorithm to answer two questions regarding portfolio diversification. How diversified is a given portfolio? How can a diversified portfolio be constructed? Additionally, we use the multidimensional scaling (MDS) algorithm to visualize results. Procedure Take the last 120 days of adjusted close data. Zscore the data (substract the mean and divide by the standard deviation).
  • Using Machine Learning to Predict Options Returns [Alpha Architect]

    Though classical option pricing models assume that options are redundant assets, more recent research rejects this idea. However, research on cross-sectional predictors of option returns is relatively scarce and not very well understood. Contrarily, extensive literature examines cross-sectional determinants of stocks, bonds, currencies, mutual funds, and hedge funds. In this paper, the authors use

Quantocracy’s Daily Wrap for 11/03/2021

This is a summary of links featured on Quantocracy on Wednesday, 11/03/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The brave new world of probability and statistics [Mathematical Investor]

    Today, arguably more than ever before, the world is governed by the science of probability and statistics. Big data is now the norm in scientific research, with terabytes of data streaming into research centers from satellites and experimental facilities, analyzed by supercomputers. Data mining is now an essential part of mathematical finance and business management. Numerous public
  • One-N against the world! [OSM]

    Were taking a short break from neural networks to return to portfolio optimization. Our last posts in the portfolio series discussed risk-constrained optimization. Before that we examined satisificing vs. mean-variance optimization (MVO). In our last post on that topic, we simulated 1,000 60-month (5-year) return series using the 1987-1991 period for our four assets: stocks, bonds, commodities

Quantocracy’s Daily Wrap for 11/02/2021

This is a summary of links featured on Quantocracy on Tuesday, 11/02/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Reddit for Fun and Profit [part 1] [Alpha Scientist]

    The news story in 2021 that captured the complete attention of the financial press was the Gamestop / WallStreetBets / RoaringKitty episode of late January. A group of presumably small, retail traders banded together on Reddit's r/wallstreetbets forum to drive the price of $GME, $AMC and other "meme stocks" to unimaginable heights, wreaking havoc with the crowd of hedge funds who
  • What Is Machine Learning? [Enjine]

    Im South Korean by birth, but I spent most of my highschool years in Ireland. I wanted to remain in an English speaking country after I graduated, so I chose to go to the University of Waterloo, located in Canada. During the first lecture I attended, I needed to edit something I wrote. I rummaged through my pencil case, but failed to find what I was looking for, so I turned to a couple of
  • Hong Kong Machine Learning Meetup [Gautier Marti]

    When? Wednesday, October 27, 2021 from 7:00 PM to 9:00 PM (Hong Kong Time) Where? At your home, on zoom. All meetups will be online as long as this COVID-19 crisis is not over. The page of the event on Meetup: HKML S4E2 Programme: Talk 1: Systematic Pricing and Trading of Municipal Bonds Petter N. Kolm Professor at New York University (NYU) – Courant Institute of Mathematical Sciences Sudar
  • A Complete System for New Traders: Adding Entry Signals [Raposa Trade]

    If youre new to trading, it may be challenging to know how to get started. There are so many new terms, maths, and concepts, it can seem overwhelming! Now you have to take all that stuff and figure out how to make a profitable system out of it? Most people give up at this point. To address this, were building on a system thats built for newbies, Rob Carvers Starter System as outlined
  • Short-Term Momentum in Stocks, Commodities, and Cryptos [Factor Research]

    Developed markets have evolved from momentum to mean-reversion markets Other markets like EM or cryptos are momentum-dominated Likely explained by the distribution of retail vs institutional investors INTRODUCTION Markets evolve constantly, but they rarely change structurally. When they do, it is usually either due to new policies or products. Regulations tend to have a more immediate effect, e.g.

Quantocracy’s Daily Wrap for 10/29/2021

This is a summary of links featured on Quantocracy on Friday, 10/29/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • An Introduction to Value at Risk Methodologies [Quantpedia]

    Understanding the risks of any quantitative trading strategy is one of the pillars of successful portfolio management. Of course, we can hope for good future performance, but to survive market whipsaws, we must have tools for sound risk management. The Value at Risk measure is such a standard tool used to assess the riskiness of trading and investment strategies over time. We plan to unveil

Quantocracy’s Daily Wrap for 10/27/2021

This is a summary of links featured on Quantocracy on Wednesday, 10/27/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Czekanowski Index-Based Similarity as Alternative Correlation Measure [Quant at Risk]

    In quantitative finance we are used to measuring direct linear correlations or non-linear cross-bicorrelations among various time-series. For the former, by default, one adopts the calculation of Pearson product-moment correlation coefficients to quantify a linear relationship between two vectors. This is true if the the data follow Gaussian distribution. In other case, the rank correlation
  • Realized Volatility In Bitcoin Index [Lucas Miranda]

    One of the most relevant characteristics of digital assets is the high volatility observed in their prices. In this context, it is necessary that we have an adequate estimate of this parameter. In addition, there is great value in models that seek to predict future asset volatility values, which can be seen in the extensive literature on this topic. Here we will manipulate a high frequency
  • 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 statements are a powerful variable that moves the world economy. Why not to take advantage of it in an
  • Do factors have a role in asset allocation? [Alpha Architect]

    What is the role of factors in asset allocation? Should investors substitute factor exposures for asset classes in constructing strategic portfolios? Or should factors be used as an instrument to enhance the performance of asset class-based allocation schemes? There are still quite a few questions surrounding the implementation of asset allocation strategies even though they have permeated

Quantocracy’s Daily Wrap for 10/25/2021

This is a summary of links featured on Quantocracy on Monday, 10/25/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Pairs Trading Based on Renko and Kagi Models [Hudson and Thames]

    A group of strategies, named statistical arbitrage or pairs trading strategies are well-known for being market-neutral gained their popularity among institutional and individual investors. In general, to develop a pairs trading strategy, one needs to figure out two aspects, the first is how to select assets to form a process with mean-reverting properties, and the second is how to decide when and
  • Does the Equity Market Lead the Currency Market? [Factor Research]

    Past equity market returns seem to predict currency returns Such a currency timing strategy may be interesting as a diversifier However, it is difficult to rationalize the results INTRODUCTION Bloomberg TV at 08:30 am EST: The S&P 500 futures are trading lower as the US Dollar depreciated against G10 currencies overnight. CNBC at 9:45 am EST: The USD appreciated given a strong opening
  • A Complete Starter System for New Traders [Raposa Trade]

    Your biggest investment just took another move higher. It has gotten to the point that you start thinking about taking some profit off the table: its looking more and more enticing by the day! Do you do it? If youre like most investors, you cant resist taking some money today, even if it winds up costing you in the long run. Or, perhaps your brilliant investment thesis hasnt panned

Quantocracy’s Daily Wrap for 10/24/2021

This is a summary of links featured on Quantocracy on Sunday, 10/24/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • New Site: Is the diversification ratio time-varying? [Lucas Miranda]

    Today we are going to check whether the diversification index proposed by Choueifaty and Coignard (2008) varies over time and some characteristics of this index. The construction of this analysis will be done using python. The Bovespa Index is the main stock index in the Brazilian market and is composed of around 90 stocks. You can check the daily composition of the index here. Remember the
  • A History of Wealth Creation in the U.S. Equity Markets [Alpha Architect]

    Hendrik Bessembinder contributes to the literature on the returns to public equity investment diversification benefits with his study Wealth Creation in the US Public Stock Markets 1926-2019, published in the April 2021 issue of The Journal of Investing. The study updated his 2018 paper, Do Stocks Outperform Treasury Bills?, (Summary and More) adding three more years of data. He
  • A New parameterization of Correlation Matrices [Eran Raviv]

    In volatility modelling, a typical challenge is to keep the covariance matrix estimate valid, meaning (1) symmetric and (2) positive semi definite*. A new paper published in Econometrica (citing from the paper) introduces a novel parametrization of the correlation matrix. The reparametrization facilitates modeling of correlation and covariance matrices by an unrestricted vector, where positive