Quantocracy

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Quantocracy’s Daily Wrap for 08/11/2021

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

  • New Feature: Cluster Analysis [Allocate Smartly]

    We track a lot of tactical strategies, and it can be difficult to understand how they all fit together in the big picture. The usual correlation matrix (example) is helpful when drilling down on a single strategy, but its near impossible to see the forest for the trees among the 1000s of data points. In response, weve added a new feature that we hope will provide clarity: a Cluster
  • Modeling US Stock Market Expected Returns, Part III [Capital Spectator]

    I recently outlined two models for estimating the US stock markets return for the decade ahead. Lets add a third model to the mix with the plan to take the average as a relatively robust forecast. The previous two models (see here and here) used valuation to estimate ex ante performance for the S&P 500 Index. One used Professor Robert Shillers Cyclically Adjusted Price Earnings Ratio
  • Value Investing and the Role of Intangibles [Alpha Architect]

    Recent research, including the 2020 studies Explaining the Recent Failure of Value Investing and Intangible Capital and the Value Factor: Has Your Value Definition Just Expired?, have investigated the impact on U.S. value strategies of the increase in the relative importance of intangible assets compared to physical assets. 1 Because global accounting standards require companies to

Quantocracy’s Daily Wrap for 08/10/2021

This is a summary of links featured on Quantocracy on Tuesday, 08/10/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Valuing Bitcoin using USD Index [Recession Alert]

    Of the dozen indicators and metrics we have researched, the fortunes of the US Trade-Weighted U.S Dollar Index (TWDI) has the biggest impact on Bitcoin USD prices. When the TWDI depreciates, this boosts Bitcoin prices strongly. When the TWDI becomes stronger, Bitcoin prices face significant headwinds. The TWDI is a weekly index created by the U.S Federal Reserve to measure value of the U.S.

Quantocracy’s Daily Wrap for 08/09/2021

This is a summary of links featured on Quantocracy on Monday, 08/09/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Extended Optimal Arbitrage Strategies [Hudson and Thames]

    In our previous article, weve discussed a couple of trading strategies exploiting arbitrage between similar stocks using stochastic optimal control methods. A major shortcoming of those approaches is that we restricted ourselves to constructing delta-neutral portfolios. Along with this, the ratio between the stocks in the portfolio is fixed at the start of the investment timeline. These
  • Building an Inflation Portfolio Using Stocks [Factor Research]

    An inflation portfolio can be created by systematically selecting stocks correlated to inflation This would have resulted in a portfolio with strong sector and factor biases However, the correlation to inflation would not have been significantly higher than for stocks overall INTRODUCTION Measuring inflation is as challenging as calculating our body weight changes using only a mirror. We might
  • Should you Trade with the Kelly Criterion? [Raposa Trade]

    The Kelly Criterion gives an optimal result for betting based on the probability of winning a bet and how much you receive for winning. If you check out Wikipedia or Investopedia, youll see formulas like this: f=p1pb1f^{*} = p – frac{1-p}{b-1} f=pb11p which gives you the optimal amount to bet (ff^*f) given the probability of winning (p) and the payout youre
  • Machine learning for portfolio diversification [SR SV]

    Dimension reduction methods of machine learning are suited for detecting latent factors of a broad set of asset prices. These factors can then be used to improve estimates of the covariance structure of price changes and by extension to improve the construction of a well-diversified minimum variance portfolio. Methods for dimension reduction include sparse principal components analysis,

Quantocracy’s Daily Wrap for 08/05/2021

This is a summary of links featured on Quantocracy on Thursday, 08/05/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Paper Review: Algorithmic Financial Trading with Deep Convolutional Neural Networks [Enjine]

    Of the major machine learning algorithms, the convolutional neural network (CNN) is my favourite. CNNs form some of our companys most cherished elements that give strength to our investment algorithms. My curiosity was therefore piqued when I came across Sezer and Ozbayoglus paper titled Algorithmic Financial Trading with Deep Convolutional Neural Networks: Time Series to Image Conversion
  • The Active vs Passive: Smart Factors, Market Portfolio, or Both? [Alpha Architect]

    While there may be debates about passive and active investing, and even blogs about the numbers of active funds that were outperformed by the market, history taught us that the outperformance of active or passive investing is cyclical. As a proxy for active investing, the paper examines factor strategies and their smart allocation using fast or slow time-series momentum signals, the relative
  • 10 Free Swing Trading Strategies That Work (Backtested Buy And Sell Signals) [Quantified Strategies]

    The internet is flooded with anecdotal evidence about how to swing trade and how to make money. Unfortunately, almost all articles consist of unproven and untested swing trades. To make money swing trading is difficult, but we believe you face much better odds the more you backtest and generate trading ideas. Below we provide you with 10 free swing trading strategies that work. They are all

Quantocracy’s Daily Wrap for 08/03/2021

This is a summary of links featured on Quantocracy on Tuesday, 08/03/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Distance Approach in Pairs Trading: Part II [Hudson and Thames]

    We have discussed Basic Distance Approach in the previous blog post. In this post, well look into one of the advanced methods in the Distance Approach and its differences to the Basic Distance Approach. If you havent read the previous blog post, we recommend reading it before you read this post: Introduction to Distance Approach in Pairs Trading: Part I Pearson Correlation Approach So, what

Quantocracy’s Daily Wrap for 08/02/2021

This is a summary of links featured on Quantocracy on Monday, 08/02/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • A quick example on using next day open-to-open returns for Tactical Asset Allocation [QuantStrat TradeR]

    First off, for the hiring managers out there, after about a one-year contracting role at Bank of America doing some analytical reporting coding for them in Python, I am on the job market. Feel free to find my LinkedIn here. This post will cover how to make tactical asset allocation strategies a bit more realistic with regards to execution. That is, by using next-day open-to-open rather than
  • Building a Long Volatility Strategy without Using Options [Factor Research]

    Long volatility strategies can be built without using options Portfolios would have primarily consisted of certain currency pairs and treasury bonds They lack explosive returns when volatility spikes, but they also lack the bleed INTRODUCTION Almost all asset classes are implicitly short volatility as they are bets on the economy doing well. Occasionally there are periods like during the tech
  • Factor Investing and International Markets [Alpha Architect]

    nternational markets have been a fertile testbed for factor research because they offer an opportunity to test old ideas on new data. Much of the previous work studying factor structure and risk premia in international markets uses highly aggregated test assets, such as country portfolios, industry portfolios, or style portfolios. In this paper, the authors propose a methodology customized for

Quantocracy’s Daily Wrap for 08/01/2021

This is a summary of links featured on Quantocracy on Sunday, 08/01/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

Quantocracy’s Daily Wrap for 07/29/2021

This is a summary of links featured on Quantocracy on Thursday, 07/29/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • A Personal Portfolio Allocation Approach [Open Source Quant]

    My experience in financial markets to date has mostly been related to trading and investment banking. From executing index arbitrage and various other strategies, to product managing a team building execution algorithms for automating strategies which minimize market impact and make relative and conditional trading decisions. More recently, post a move to Canada from South Africa, I have had the
  • Five Small Shards of Insight Hidden in Data [Quantpedia]

    Around a month ago, we launched a series of short videos called Quantpedia Explains, in which we plan to show and explain some of the themes out of quantitative finance that we think are worth mentioning. We have started with a quick intro to individual Quantpedia Pro reports, and now, we have expanded our content with a series of short case study articles. Each article uses one Quantpedia
  • Pricing Deribit Options [Tr8dr]

    We have been working on some option strategies and wanted to get a sense of how well BTC and ETH options are priced on Deribit, i.e. is there a substantial IV premium over realized volatility or are options fairly priced. At first glance, based on the documentation, it seemed that Deribit options were Europeans on spot or spot equivalent. On closer inspection, however, and with some follow-ups
  • The Benefits of Sin Stocks [Alpha Architect]

    While environmental, social, and governance (ESG) investing continues to gain in popularity, economic theory suggests the share prices of sin businesses (typically those involved in the gambling, tobacco, alcohol, guns, and defense industries) will become depressed if a large enough proportion of investors choose to avoid themthe shunned-stock hypothesis. Such stocks would have a

Quantocracy’s Daily Wrap for 07/28/2021

This is a summary of links featured on Quantocracy on Wednesday, 07/28/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • March for the Fallen 2021: Detailed Logistics Outline and What to Expect [Alpha Architect]

    March for the Fallen (#MFTF) will happen on September 25, 2021. COVID can't kill the event this year! Action Item: Please let us know your trip details so we can support you as much as possible. Here are the links to prior updates if you'd like to review: Footwear and foot care Uniform/Gear Nutrition Secret Weapons My personal travel plan this year (hope to see many of you at both
  • 7 Things I’ve learned about trading from the industry’s smartest people [Tradologics]

    The first (annual) Algo Trading Summit was a huge success! Over 2,500 registered for the event, with an average of 500 people watching the live stream at any given moment and, so far, the video recordings have over 5,000 views. Not too shabby. In this post, I want to share and summarize some of my takeaways from the event. I would love to know what you think about these takeaways. Let me know

Quantocracy’s Daily Wrap for 07/27/2021

This is a summary of links featured on Quantocracy on Tuesday, 07/27/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Intro to Partial Sample Regression [Hudson and Thames]

    Ordinary least squares (OLS) regression is probably the most commonly used statistical method in quantitative finance (and likely in other quantitative fields). It is very fast to compute, and the results are often quite interpretable. Due to its simplicity, it serves as the cornerstone for many more complex statistical or machine learning models. Also, it has been studied so thoroughly
  • Residualization of Risk Factors: Examples and Pitfalls [Portfolio Optimizer]

    The most common approach to measuring portfolio (risk) factor exposures is linear regression analysis, which describes the relationship between a dependent variable – portfolio returns – and explanatory variables – factors – as linear. One of the outputs of this analysis are the partial regression coefficients, also known as the betas ( ). Each one of them measures the expected change in the
  • “Low-effort Trading Strategies” with Cesar Alvarez (@AlvarezQuant) [Better System Trader]

    Algorithmic trader Cesar Alvarez from Alvarez Quant Trading joins us to discuss low effort trading strategies, including: An explanation of rotational trading and the benefits/challenges of using rotational strategies, Why rotational trading is a fantastic way to diversify time (and also get to trade lazy), How often to rebalance and the impacts of the day you choose to rebalance, Ranking