Quant Mashup Rob Hanna Giving Free Webinar About Trading On & Around Fed Days (Wed 5:30pm EST) [Quantifiable Edges]As part of the Festival of Traders I will be presenting a webinar on Wednesday at 5:30pm EST with much of my Fed Day research in focus.
Click here for more information and to register for the event. The Very Cheapest Stocks (Price/Book) Do Very Badly [Millennial Invest]Book to price is a bad value factor. It is a decent stock selection factor overall, but relative to the other ways of measuring value (earnings to price, cash flow to price, EBITDA/EV, etc) it is sub par. I've been interested lately in very concentrated value portfolios, and found it(...) Bitcoin L3 Feeds: Status [Tr8dr]I have implemented 4 bitcoin exchange interfaces now that produce a live L3 stream of orderbook updates + trades of the form: Screen Shot 2015-02-10 at 6.33.12 PM Given the above, can reconstitute the orderbook as it moves through time, and can likewise be used to creat Are Some Decisions to Allocate to U.S. Equities Due to Survivorship Bias? [Alpha Architect]The primary driver of long-horizon wealth is expected returns. Why would you invest in anything but stocks? Why isn’t your portfolio 100% stocks? Do you believe stocks are going to have the highest return? By the way, stocks have averaged 10% a year for a long period of time. Bonds have averaged(...) Transports Slipping $IYT [@NautilusCap]Transports Slipping $IYT Volatility and "Crashing Up" [Flirting with Models]A frequent point of conversation that we have at Newfound – both internally and with advisors – is the role of volatility as a measure of risk. On the one hand, from a statistical point of view, higher volatility implies a greater potential magnitude of loss. On the other hand, investors are(...) Modelling Asset Returns with Brownian Motion [Quanttech]The geometric Brownian motion model allows you to generate a series of prices for an asset. It is a type of stochastic process that follows a Brownian motion path with a drift. Stochastic processes are a concept from probability theory which are used to model the change in a seemingly random process(...) Utilities relative strength top? $XLU [@NautilusCap]Utilities relative strength top? $XLU RUT Iron Condor - Dynamic Exit - 38 DTE - 8 Delta Continued [DTR Trading]This post is a continuation of the prior post. I will show the backtest results for dynamic exits of 38 days-to-expiration (DTE) Iron Condors (IC), with 8 delta short strikes, with different profit and loss exits as a percentage of the initial credit. For some background on how these results are(...) PELTing a Competing Changepoint Algorithm [QuantStrat TradeR]This post will demonstrate the PELT algorithm from the changepoint package–a competing algorithm to the twitter package’s breakout detection algorithm. While neither of these algorithms produce satisfactory results, one change point location approximation algorithm that makes no distributional(...) The Impact of Cash Flow on Asset Allocation Decisions [Alpha Architect]nvestors trying to make decisions on how to invest their savings face many complications that are frequently ignored in research papers on asset allocation. Often, it is assumed that a fixed lump sum of money is invested. But this is rarely the case in real world investing for the individual(...) Exploring social media analytics [Behavioural Quant]I’ve previously touched on the use of social media analytics as one useful measure of investor sentiment. It does occur to me that it might be interesting to explore a particular source of such analytics. This could be of service by making the concepts more tangible and by illustrating the growth(...) Monte Carlo K-Means Clustering of Countries with Python (Part 2/3) [Stuart Gordon Reid]In the first part of this three-part series, What Drives Real GDP Growth?, I identified four themes which drive real GDP growth. These themes are based on 19 socioeconomic indicators whose average Spearman and Pearson correlations to real GDP growth were statistically significant and greater than(...) A “Simple” Tactical Asset Allocation Portfolio with Percentile Channels (for Dummies) [CSS Analytics]I actually received a large volume of what could best be chararcterized as “hate mail” for one of the previous posts on percentile channels. In reading these comments I was reminded of Jimmy Kimmel’s funny segments where celebrities read mean tweets about themselves. While I did not publish(...) Constructing an Alpha Portfolio with Factor Tilts [Alphaism]In this post I’d like to show an example of constructing a monthly-rebalanced long-short portfolio to exploit alpha signals while controlling for factor exposures. This example covers the time period between March 2005 and 2014. I use 477 stocks from S&P500 universe (data source: Quandl) and(...) Simple Monte Carlo With Thrust [Quant Trader]We have already shown before how to set up CUDA in both Windows and Linux environment and how to create a simple project. Today we will demonstrate how easy it is to perform a simple Monte Carlo simulation using Thrust library. We will do so by estimating π with random numbers. From the(...) For an Auditor, Intuition Might Matter! [Alpha Architect]Based on psychology theory, we propose that intuition can be a key element stimulating auditor skepticism, whereas overreliance on analytical processing can overwhelm auditors’ intuition thereby reducing skepticism. We test our expectations with an experiment containing responses from 85 senior(...) Time to consider Materials Leadership? $XLB [@NautilusCap]Time to consider Materials Leadership? $XLB 26% a Year in 3 Easy Trades? [Jay On The Markets]Some trading strategies make intuitive sense. Other trading strategies do not. With some trading strategies it is possible to articulate some logical reason or reasons regarding why they might be expected to work well over time. With others trading strategies, well, not so much. CAGR Confidence Intervals and Consistency [Quantlab.co.za]Last year Rowan spoke about the importance of consistency in portfolio construction and today I'd like to expand on the concept a little. There are a number of reasons why consistency is important: 1) our performance pegged pricing structure is based on consistency 2) it's psychologically(...) Doom and the Stock Market [CXO Advisory]Is proximity to doom good or bad for the stock market? To measure proximity to doom, we use the “Doomsday Clock” “Minutes-to-Midnight” metric, revised occasionally via the Bulletin of the Atomic Scientists, which “conveys how close we are to destroying our civilization with dangerous(...) Dual momentum: real portfolios and current status [RRSP Strategy]Dual momentum with Value and Momentum factor portfolios was tested back to 1950 with 16% annual returns: What is the tracking error of real ETFs to those portfolios? Vanguard Small-Value (VBR) launched in 2004 and can underperform Value near market peaks … Continue reading Trading Google Trends with logistic regression [MKTSTK]Recently we have highlighted the value of using social data in your analysis of the market. Earlier we showed how you could have used Google Trends to price ZNGA after its IPO. We also showed how you can monitor risk with the Twitter stream. Today we will expand upon an example where we showed how(...) Another Wall Street Scheme: "Juicers" [Alpha Architect]Some mutual funds purchase stocks before dividend payments to artificially increase their dividends, which we call "juicing." Funds paid more than twice the dividends implied by their holdings in 7.4% of fund-years examined. Juicing is associated with larger inflows, and is more common(...) S&P500 Thursday - Win Rate [Stockdotnu]Win rate for Thursday, data from 2014-01-09 until February 2015-01-29, total of 53 days in 5 min interval. First graph from every 5 min start to end, impossible to follow a specific line. Second graph from start and Europe close, third graph starts from every hour. Portfolio Analysis in R: Part II | Analyzing A 60/40 Strategy [Capital Spectator]In a previous post I reviewed the basics of using the PerformanceAnalytics package in R for evaluating a simple 60/40 US stock/bond portfolio based on a pair of ETFs. Let’s round out that preliminary review by exploring a few additional applications before moving on to a deeper level of analysis(...) State of Trend Following in January [Au Tra Sy]The year is starting as it ended for trend following: Very strong. The index posted a first good month (over +6%). Trend Following keeps on trending up! Please check below for more details. Detailed Results The figures for the month are: January return: +6.62% Below is the chart displaying(...) Your Alpha is My Beta [GestaltU]A couple of weeks ago, I had the pleasure of a short correspondence with Lars Kestner, a well known quant and derivatives trader, and creator of the thoughtful K-ratio as a measure of risk adjusted performance. We connected on the definition of alpha, and how the term has been so abused in media and(...) Forex Trading Diary #2 - Adding a Portfolio to the OANDA Automated Trading System [Quant Start]In the last Forex Trading Diary Entry (#1) I described how to build an automated trading system that hooks into the OANDA forex brokerage API. I also mentioned that the next steps included constructing a portfolio and risk management overlay for all suggested signals generated by the Strategy(...) RUT Iron Condor - Dynamic Exit - 38 DTE - 8 Delta [DTR Trading]Starting with this post, and spanning the next seven or eight posts, I will show the backtest results for dynamic exits of 38 days-to-expiration (DTE) Iron Condors (IC), with different delta short strikes. In this post I wills show the results for the 8 delta short strike 38 DTE versions. For some(...) A fourth consecutive up close for oil today would be a notable shift in trading patterns $USO [@NautilusCap]A fourth consecutive up close for oil today would be a notable shift in trading patterns $USO Quantitative Momentum Research: Price and Earnings Momentum [Alpha Architect]We examine whether the predictability of future returns from past returns is due to the market's underreaction to information, in particular to past earnings news. Past return and past earnings surprise each predict large drifts in future returns after controlling for the other. Market risk,(...) How to Hedge Your Business [Meb Faber]Note: I’m holding a cover design contest for my new book out next week, feel free to enter! This is normally something I would send to The Idea Farm, but since we started the conversation here I wanted to follow up. One of the best parts of writing is getting feedback. I posted an article the(...) State of Trend Following: Momentum Still Strong in 2015 [Wisdom Trading]January started the year as strong — if not stronger — than last year for trend following. Keeping the momentum going, and profiting from a continuation in a few big trends (US Dollar Index, Energies or Swiss Bonds for instance), the index opens the year with a double-digit positive monthly(...) Error-Adjusted Momentum Redux [CSS Analytics]James Picerno of Capital Spectator recently did a good review of Error-Adjusted Momentum in his post “A Momentum-Based Trading Signal with Strategic Value“. The Capital Spectator blog is rich with great content covering a diverse range of subjects from economics to asset allocation and(...) S&P500 Tuesday - Win Rate [Stockdotnu]in rate for Tuesday, data from 2014-01-07 until February 2015-01-27, total of 55 days in 5 min interval. First graph from every 5 min start to end, impossible to follow a specific line. Second graph from start and Europe close, third graph starts from every hour. Largest monthly SPX loss in over a year $SPY [@NautilusCap]Largest monthly SPX loss in over a year $SPY January Barometer, fwiw $SPY [@NautilusCap]January Barometer, fwiw $SPY Fundamental Investors Following Insider Filings--Beware! [Alpha Architect]We use a large recent sample of Form 4 insider trading filings to provide evidence on the process through which SEC filings are disseminated via EDGAR. We find that while the delay from a filing’s acceptance by EDGAR to its initial public availability on the SEC website is relatively short, with a(...) S&P500 – Statistics – February [Stockdotnu]Monthly statistics for the S&P500 based on the closing price between year 1950-1958 and 2014 or 1995 to 2014. In pictures, mean, median, win rate per trading day, sum %, profit factor, avg. trade %, quartiles and percentiles. Quartiles and Percentiles on monthly development, graph at top is the(...) Is It Time to Buy Energies? [Jay On The Markets]A quick glance at Figure 1 is enough to scare the daylights out of most sane investors.fsenx 1 Figure 1 – SPDR Energy (ticker XLE) (Courtesy AIQ TradingExpert) Thanks primarily to Saudi Arabia’s desire to “boost market share” by putting a lot of oil producers around the globe “out of(...) Software you lose when leaving a university: Mathematica [Walking Randomly]I’ve been working at The University of Manchester for almost a decade and will be leaving in just less than 3 weeks time! A huge part of my job was to support a major subset of Manchester’s site licensed application software portfolio so naturally I’ve made use of a lot of it over the years.(...) Rob Hanna Will Be On TimingResearch’s Weekly Webshow – 1pm EST on Monday [Quantifiable Edges]I have been asked to join a live discussion panel being put on by TimingResearch. Each week, TimingResearch surveys a large group of traders to get their thoughts about current market conditions. TimingResearch then produces a report based on the survey. Hidden Markov Models – Trend Following – Sharpe Ratio 3.1 – Part 4 of 4 [Gekko Quant]Part 3 of this series demonstrated how to train a HMM on a toy model, this post will focus on how to actually go about modelling real life data. A trend following strategy will be developed for trading the S&P 500. In most machine learning classification problems you need a set of training data(...) A Look At The January Barometer [Quantifiable Edges]The January Barometer is a fairly famous study from the Stock Traders Almanac. It says that “as goes January, so goes the year”. In other words, a positive January will typically lead to a positive year, while a negative January can be a warning. Let’s look at how the SPX has done for the Ivy Portfolio February Update [Scott's Investments]Scott’s Investments provides a daily Ivy Portfolio spreadsheet to 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(...) January’s false start marks return to normal for stocks [MktStk]We have been thinking a lot about winning streaks lately. Looking at charts of the S&P 500 index it is hard not to be impressed by how many positive monthly returns we have had since the “resolution” of the last full-blown Euro crisis in mid-2012. We wanted to gain some historical(...) Comparing Flexible and Elastic Asset Allocation [QuantStrat TradeR]So recently, I tried to combine Flexible and Elastic Asset Allocation. The operative word being–tried. Essentially, I saw Flexible Asset Allocation as an incomplete algorithm — namely that although it was an excellent method for selecting securities, that there had to have been a better way to(...) Everything Old is New Again [Meb Faber]Reading old investment books is somewhat of a hobby of mine (I know probably need a better hobby). Glancing up on my bookshelf there are titles most have never heard of such as Once in Golconda, The Zurich Axioms, and Supermoney. I was flipping through another book new to me that I found when(...) Manliness implies Misreporting? [Alpha Architect]We examine the relation between a measure of male CEOs’ facial masculinity and financial misreporting. Facial masculinity is associated with a complex of masculine behaviors (including aggression, egocentrism, risk-seeking, and maintenance of social status) in males. One possible mechanism for(...)