Quant Mashup Ivy Portfolio June Update [Scott's Investments]The Ivy Portfolio spreadsheet track the 10 month moving average signals for two portfolios listed in Mebane Faber’s book The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term(...) Chapter 5 – The Permanent Portfolio [Meb Faber]This excerpt is from the book Global Asset Allocation now available on Amazon as an eBook. If you promise to write a review, go here and I’ll send you a free copy. —- Harry Browne was an author of over 12 books, a one-time Presidential candidate, and a financial advisor. The basic portfolio that(...) What Do Falling Corporate Profits Mean With Stocks Near Their Highs? [Dana Lyons]If you’ve followed this blog for awhile, you may have noticed that we don’t cover fundamental or economic data too often. That is for a good reason: we don’t use it, at all. Occasionally, however, a data point will cross the radar that piques our interest for whatever reason. So it is with the(...) Discussing Deep Value and the Acquirer’s Multiple at Harvard [Greenbackd]A little over a month ago I travelled to Harvard to speak to Michael Parzen’s business statistics class on Deep Value and the acquirer’s multiple. Here is the recording of that talk. You can get a free list of the best deep value stocks in the largest 1000 names on The Acquirer’s Multiple. Buy(...) 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(...) Chapter 4 - The Risk Parity and All Seasons Portfolios [Meb Faber]This excerpt is from the book Global Asset Allocation now available on Amazon as an eBook. If you promise to write a review, go here and I'll send you a free copy. -- "I know that there are good and bad environments for all asset classes. And I know that in one's lifetime, there will(...) List of Funds or Trading Firms Using Artificial Intelligence or Machine Learning [Robust Tech House]The following are the list of funds or trading firms using artificial intelligence or machine learning for their research and trading purposes. There are probably a lot more than this but many prefer to stay very quiet. The list and info here is compiled from public sources amongst the links(...) 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(...) [Academic Paper] Test of Covariance Matrix Forecasting Methods [@Quantivity]Test of Covariance Matrix Forecasting Methods Basic Factor Analysis: Simple Tools to Understand What Drives Performance [Alpha Architect]Investors should know what they are buying and why they are buying it. Unfortunately, more often than not, investment products are jammed down the throats of unsuspecting victims who are either ignorant, easy to influence, and/or don’t really care. We highlighted an extreme example of this in the(...) Momentum Environments [Systematic Relative Strength]How consistent are Momentum returns? This is among the most frequently asked questions about Momentum (and about any investment strategy for that matter). One way to answer this question is to look at the following table from a white paper published by RBC Capital Markets. According to their(...) SPX Iron Condor - High Loss Threshold - 80 DTE [DTR Trading]This post looks at a standard (STD) one-lot iron condor on the S&P 500 Index (SPX), initiated at 80 days-to-expiration (DTE). The results in this post were derived from approximately 3200 individual trades entered by the backtester. For background on the setup for the backtests, as well as the(...) Amazing paper related to several momentum strategies [Quantpedia]#2 - Asset Class Momentum - Rotational System #3 - Sector Momentum - Rotational System #8 - FX Momentum #14 - Momentum Effect in Stocks #15 - Momentum Effect in Country Equity Indexes Authors: Geczy, Samonov Title: 215 Years of Global Multi-Asset Momentum: 1800-2014 (Equities, Sectors, Currencies,(...) [Academic Paper] Multivariate Conditional Outlier Detection [@Quantivity]Multivariate Conditional Outlier Detection [Academic Paper] Feature Selection Risk [@Quantivity]Feature Selection Risk [Academic Paper] Sparse Signals in the Cross-Section of Returns [@Quantivity]Sparse Signals in the Cross-Section of Returns Using Leadership Index to Time S&P 500 [Systematic Investor]To install Systematic Investor Toolbox (SIT) please visit About page. Following is code and plots used in RFinance 2015 presentation. We will use a C++ function to compute Lagged Correlations from the Run Leadership Rcpp post. First, let’s load historical prices for S&P 500. Please note that(...) 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(...) ETF Sector Rotation – Ideas from readers [Alvarez Quant Trading]The post ETF Sector Rotation generated some good ideas on what to try differently. This post will focus on two ideas on the Select Sector SPDR ETFs. The next post will look at two ideas using Fidelity sector mutual funds. ETF Universe These tests will use the Select Sector SPDR ETFs. The list is(...) Using the Price-to-Book Ratio [Investor's Field Guide]Having explored the history of the price-to-book ratio, we can now turn to its usefulness as a stock selection criterion. The data suggests a few important points about the price-to-book ratio: It has worked quite nicely in small-cap It has not worked as well in large-cap stocks Price-to-book(...) Risk-Managed Momentum Outperforms [Larry Swedroe]Momentum has been found to be a persistent and pervasive factor in the returns not only of stocks, but of other asset classes (including bonds, commodities and currencies). Compared with the market, value and size risk factors, momentum in equities has earned both the highest premium and the highest(...) [Academic Paper] Which Trend Is Your Friend? (via @carlfischer101) [@Quantivity]Which Trend Is Your Friend? (via @carlfischer101) SPX After Quick Drops From 50-day Highs [Quantifiable Edges]The study below is one I have shown here on the blog for a long time. It looks at relatively sharp selloffs from intermediate-term highs. It shows that there has been a strong tendency for situations like the current one to bounce. Results are updated. The stats all suggest an upside edge over the(...) Weekly Commentary – The 60/40 Forecast: 0% through 2025 [Flirting with Models]Benjamin Graham, father of value investing, once said: “in the short run, the market is like a voting machine but in the long run, it is a weighing machine.” The psychology factor that can dominate market returns and volatility in the short-run is often washed out in long-run annualized returns,(...) A Breakout To Nowhere [Dana Lyons]We’ve spent a good deal of “ink” over the past few months on the trendless, range-bound action that has characterized the U.S. stock market recently. This trading range has been, after all, the dominant factor in the equity market. And an epic, even record-setting, trading range it has been.(...) Good News Bonds, Bad News Bonds [Jay On The Markets]First the (potential) good news. The (potential) good news is that one trend in bonds that I wrote about a while back here and here may finally (potentially) be playing out the “right way.” Although, as there are still three more trading days left in the month of May, it is clearly a little(...) Global Tactical Asset Allocation: Just the Facts [GestaltU]Rob Seawright of Above the Market recently posted an article broadly skewering tactical asset allocation (TAA) strategies. He cites the failure of market gurus to pick market turns (from a CXO analysis we've discussed in the past), and a Morningstar study showing that TAA has under-performed(...) Daily Academic Alpha: High Lobby Efforts Equal Alpha? [Alpha Architect]Corporate Lobbying and Firm Performance Corporate lobbying activities are designed to influence legislators, regulators and courts, presumably to encourage favorable policies and/or outcomes. In dollar terms, corporate lobbying expenditures are typically one or even two orders of magnitude larger(...) New related paper to #6 & #7 - Volatility Effect in Stocks and #20 - Volatility Risk Premium Effect [Quantpedia]#6 - Volatility Effect in Stocks - Long-Short Version #7 - Volatility Effect in Stocks - Long-Only Version #20 - Volatility Risk Premium Effect Authors: Ilmanen Title: Do Financial Markets Reward Buying or Selling Insurance and Lottery Tickets? Link:(...) China up 50% in 3 months. Mixed EM historical record after similar momentum $FXI [@NautilusCap]China up 50% in 3 months. Mixed EM historical record after similar momentum $FXI SPX Iron Condor - High Loss Threshold - 66 DTE [DTR Trading]This post looks at a standard (STD) one-lot iron condor on the S&P 500 Index (SPX), initiated at 66 days-to-expiration (DTE). The results in this post were derived from approximately 3200 individual trades entered by the backtester. For background on the setup for the backtests, as well as the(...) Accounting for Data Mining Bias [Dekalog Blog]I've recently subscribed to this forexfactory thread, which is about using machine learning to develop trading systems, and the subject of data mining/data dredging has come up. This post is a short description of how mining/dredging can be accounted for, but readers should be aware that the(...) 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(...) Small Cap Volatility Hitting Historic Lows [Dana Lyons]If it feels like the stock market hasn’t moved in a few days, you’re not imagining things. With the long weekend approaching, it seems as though Wall Streeters (or their robots) packed up and departed for the mythological “Hamptons” days ago. As it pertains to the small caps, as represented(...) ATAA Conference Trip Report [Alvarez Quant Trading]I am back from the Australian Technical Analysis Association meeting in the Gold Coast, Australia. I had a great time meeting readers of the blog and other traders. Lots of good presentations. My favorites include those by Alan Clement and Andrew Gibbs, which provided me with new research ideas.(...) Narrowest SPX 6 month range in 10 years $SPX $SPY [@NautilusCap]Narrowest SPX 6 month range in 10 years $SPX $SPY Week after Memorial Day holiday pretty bullish $SPX $SPY [@NautilusCap]Week after Memorial Day holiday pretty bullish $SPX $SPY visNetwork, Currencies, and Minimum Spanning Trees [Timely Portfolio]Just because I’m ignorant doesn’t mean I won’t try things. Feel free to correct any ignorance that follows. More than anything I would like to feature the new htmlwidget visNetwork. I thought the example from Minimum Spanning Trees in R applied to currency data (similar to this research paper(...) Andrew Swanscott Interviewed me at Better System Trader (and Quantocracy readers liked it!) [Quantifiable Edges]Need something to listen to on your Memorial Day weekend car trip? Can’t bear to be without the markets for 3 days? Check Andrew Swanscott’s interview with me at his great new site, Better System Trader. It was published just a few days ago and joins a growing list of excellent podcasts that(...) Dow Divergences Part 3: The Double Dose [Dana Lyons]Today, we wrap up our mini-series on divergences among the Dow Jones indices. In previous installments, we learned that large negative divergences on the part of the Dow Jones Transportation Average (DJT) versus the Dow Jones Industrial Average (DJIA) were largely overrated. Of course, that is(...) New related paper to #237 - Dispersion Trading [Quantpedia]#237 - Dispersion Trading Authors: Deng Title: Volatility Dispersion Trading Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1156620 Abstract: This papers studies an options trading strategy known as dispersion strategy to investigate the apparent risk premium for bearing correlation risk(...) Mini Mashup: Changes Afoot in VIX Trading [Quantocracy]There are some changes afoot in the VIX trading space with the launch of the VIX ETFs VXUP and VXDN. Even if you don’t trade those specific products, they might be having a knock-on effect on VIX futures, which would impact all other VIX ETF/ETNs like VXX and XIV. There is a subset of our(...) The Risks of Owning an Individual Stock [Alpha Architect]How risky is it to buy an individual stock? This is a question investors should ask themselves when deciding to buy a single stock. However, many investors tend to get caught up in the story about why company XYZ is going to double over the next year. As an educated investor, it makes sense to know(...) Will Natural Gas Soar With the Wind in June? [Jay On The Markets]See Jay’s recent post: One More Plunge for Crude Oil? OK, my last article (Will Natural Gas Break Wind in June?) did sound a little apocalyptic regarding the prospects for natural gas in June. But maybe that did not present the full picture. While that previous article did detail a bearish(...) Put/Call ratios pretty low... $SPX $SPY [@NautilusCap]Put/Call ratios pretty low... $SPX $SPY SPX Iron Condor - High Loss Threshold - 52 DTE [DTR Trading]This post looks at a standard (STD) one-lot iron condor on the S&P 500 Index (SPX), initiated at 52 days-to-expiration (DTE). The results in this post were derived from approximately 3200 individual trades entered by the backtester. For background on the setup for the backtests, as well as the(...) Intermarket Analysis: The Pathfinder | Trading Strategy (Filter) [Oxford Capital]I. Trading Strategy Developer: Nelson F. Freeburg. Concept: The currency trading strategy based on the intermarket analysis. Source: Freeburg, N. F. (Dec. 1993). Formula Research, Quantitative Treatment of the Financial Markets. Memphis, TN: Formula Research, Inc. Research Goal: Performance(...) 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(...) The Europe Catch-Up Trade... $FEZ [@NautilusCap]The Europe Catch-Up Trade... $FEZ New Paper from GestaltU and QuantStrat TradeR: Momentum and Markowitz: A Golden Combination (PDF)Mean-Variance Optimization (MVO) as introduced by Markowitz (1952) is often presented as an elegant but impractical theory. MVO is "an unstable and error-maximizing" procedure (Michaud 1989), and "is nearly always beaten by simple 1/N portfolios" (DeMiguel, 2007). And to quote(...)