asset allocation - QuantPedia

The Price of Transaction Costs

April 22, 2022

Capturing the systematic premia is the main aim of many quantitative traders. However, investors tend to overlook an important factor when backtesting. Trading costs are an essential part of every trade, and yet even when we consider them, we only use an approximation. The recent article from Angana Jacob (SigTech) looks into how heavily trading costs affect the overall return of various strategies and analyzes multiple ways of implementing trading costs into the trading rules themselves.

Nuclear Threats and Factor Performance – Takeaway for Russia-Ukraine Conflict

March 31, 2022

The Russian invasion of Ukraine and its repercussions continue to occupy front pages all around the world. While using nuclear forces in war is probably a red line for all of the mature world, there is still possible to use nuclear weapons for blackmailing. What will be the impact of such an event on financial markets? It’s not easy to determine, but we tried to identify multiple events in the past which were also slightly unexpected and carried an indication of nuclear threat and then analyzed their impact on financial markets.

Full vs. Synthetic Replication and Tracking Errors in ETFs

March 11, 2022

The growth of passive investing and ETFs is indisputable. Consequently, this boom also affects financial markets (e.g., market elasticity or by creating predictable buys and sells) and assets that ETFs track. Even though all passive ETFs aim to replicate some benchmark index, there are two distinct approaches to doing so. The first approach is directly replicating the benchmark (by buying underlying assets) either by full direct replication or sampling. The second approach consists of synthetic replication using derivatives – most commonly by total return swaps (or futures). How do replication methods influence tracking error?

Factor Performance in Cold War Crises – A Lesson for Russia-Ukraine Conflict

March 8, 2022

The Russia-Ukraine war is a conflict that has not been in Europe since WW2. And it has great implications not only on human lives but also on security prices. It bears numerous characteristics of the cold war crises, where two nuclear powers (Soviet Union and USA/NATO) were often very close to hot war or were waging a proxy war in 3rd countries. We thought it might be wise to look at similar periods from the past to understand what happens in such situations. We selected five events and analyzed the performance of main equity factors (market, HML, SMB, momentum & 2x reversal) and energy and fixed income proxy portfolios.

Beware of Excessive Leverage – Introduction to Kelly and Optimal F

February 26, 2022

Most investors focus solely on the profitability of their investment strategy. And, even though having a profitable strategy is important, it is not everything. There are still numerous other things to consider. One of them is the size of the investment. The investment size can increase or decrease the profitability of a strategy, so it is essential to choose it right. The following article is our introduction to Kelly and Optimal F methodologies, that underlies our upcoming Quantpedia Pro report.

Cryptocurrency Stablecoins – A Review of Recent Research

February 15, 2022

Since January 2020, the annualized volatility of Bitcoin stands around 70%, 6-times the volatility of commodities like Gold or Oil, more than twice the volatility of the S&P 500, and 10 times the volatility of the EURUSD exchange rate. Stablecoins represent a specific category of cryptocurrencies aiming to keep their value stable against a benchmark asset, usually a fiat currency like the US dollar. So how do stablecoins work, and do they really offer needed stability?

Introduction to Dollar-Cost Averaging Strategies

January 31, 2022

Most of you have probably heard the saying that somebody “averaged” into or out of his investment position. But what does it exactly mean, and what different dollar-cost averaging strategies exist? We plan to unveil our new “Dollar-Cost Averaging” report for Quantpedia Pro clients next week, and this article serves as a short introduction to this term.

Lottery Effect in ETFs Across Several Asset Classes

January 17, 2022

Indisputably, we are witnesses of an ETF mega boom. From passive to active ETFs, their numbers seem to be ever-increasing. Since these exchange-traded funds can be excellent (accessible, transparent, liquid) instruments, it is a great necessity to examine their possible usage in active and systematic trading or investing. Therefore, the short research critically assesses the possibility of using ETFs in the Skewness Trading Strategy.

How to Combine Different Momentum Strategies

November 15, 2021

Today we will again talk more about the portfolio management theory, and we will focus on techniques for combining quantitative strategies into one multi-strategy portfolio. So, let’s imagine we already have a set of profitable investment strategies, and we need to combine them. The goal of such “strategy allocation” usually is to achieve the best risk-adjusted return possible. There is no single correct solution to this task, but there are a few methods that we can try.

The “appropriate combination” highly depends on the type of strategies we are about to combine. Are we combining equity and bond strategies together? Are we combining equity strategies, with each one having an entirely different logic? Or do we rather need to assign weights to strategies that are similar in nature yet still different? We will focus this article on the last option – combining similar yet different strategies.

How to Faster Enhance Strategic Asset Allocation with Tactical Models

October 19, 2021

Each change in a strategic asset allocation of a professionally managed portfolio comes only after meticulous analysis. Firstly, we must understand the current status of the portfolio – how it behaved in the past, the strong and weak points of current allocation, and the main risk factor exposures. Then we can think about the future. We can decide how active we want to be, how large a risk budget we have at our disposal, and what asset classes we want to continue to focus on in our tactical models. Afterward comes the time for creativity – we can analyze opportunities and look for ideas for new models that complement what we already have. That’s time for Quantpedia Pro, and we will use this short case study and walk you through the few features that simplify the process of finding new ideas for trading strategies that fit your individual case.