This is a summary of links featured on Quantocracy on Monday, 08/19/2019. To see our most recent links, visit the Quant Mashup. Read on readers!
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Risk Parity Part I: Chasing Diversifiers [Two Centuries Investments]The rise and fall (?) of Risk Parity is a great case study of the frameworks I have been writing about so far. We start with the concept of Chasing Diversifiers. Chasing Diversifiers (link) Although Risk Parity is as close as you get to a pure risk diversification play, just like other diversifiers, the benefits of Risk Parity were sold and bought when both the forward looking consensus
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Using PMI to Trade Cyclicals vs Defensives [Flirting with Models]After stumbling across a set of old research notes from 2009 and 2012, we attempt to implement a Cyclicals versus Defensives sector trade out-of-sample. Post-2012 returns prove unconvincing and we find little evidence supporting the notion that PMI changes can be used for constructing this trade. Using data from the Kenneth French website, we extend the study to 1948, and similarly find that
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How Painful Can Factor Investing Get? [Factor Research]A classic long-short, multi-factor portfolio has lost close to 20% since 2018 The drawdown is within expectations, but the recovery period is abnormally long However, its difficult to argue for structural changes that make factor investing unattractive SEEKING DIVERSIFICATION THROUGH MULTI-FACTOR PRODUCTS Investors have flooded into multi-factor strategies over the last several years. The