We explore the mirror concepts of fragility & robustness using a slimmed-down version of the Newfound/ReSolve Robust Equity Momentum Index.
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Global Equity Momentum: A Craftsman’s Perspective – Executive Summary
Quantitative investment researchers often seek uniquely optimal parameterizations of their strategies amongst a broad “robust” region of parameter choices. However, this ignores a critically important feature of investing – Diversification. By diversifying across many equally legitimate parameter choices – an ensemble – investors may …
Keep ReadingPortfolio Optimization and the Sharpe Multiplier: A Case Study on Managed Futures
We’ve spent a great deal of time in past articles discussing the merits of portfolio optimization. In this article we will examine the merits and challenges of portfolio optimization in the context of one of the most challenging investment universes: managed futures.
Keep ReadingDiversification – What Most Novice Investors Miss About Trend Following
The true benefit of trend following is only realized when investors take advantage of the extreme liquidity and diversity of global futures markets to trade a wide range of markets across all major asset categories. Our analysis shows that an investor would have achieved more than double the risk-adjusted performance of a median equity trend strategy by trading a diversified strategy across many diverse markets.
Keep ReadingDr. Kathryn Kaminsky: Managed Futures Trend Following Q&A
Last week we were jazzed to have Dr. Kathryn Kaminski deliver a comprehensive presentation on Managed Futures Trend Following: The Ultimate Diversifier, where she covered the role of convergent and divergent strategies, and introduced other important themes like:
Keep ReadingDynamic Asset Allocation for Practitioners Part 4: Momentum Weighting
To be crystal clear, our discussion will NOT focus on trying to identify which signals or parameters, or combinations of signals and parameters, are better or worse than others. While most quants – being tinkerers at heart – waste most of their time fine-tuning the parameters of …
Keep ReadingTactical Asset Allocation Alpha and The Greatest Trick the Devil Ever Pulled
The investment industry has investors convinced that the only path to better performance is through stock selection. As a result, most investors approach the challenge of portfolio construction exactly backward, and miss out on the most important opportunities to produce …
Keep ReadingMissing the forest for the trees: Asset allocation over security selection
By far the greatest source of personal consternation as a professional in markets is investors’ obsession with finding the best stocks, or the best stock pickers. The fact that investors pursue this objective at all undermines all meaningful arguments about efficient markets.
Keep ReadingTactical Alpha in Theory and Practice (Part II): Principal Component Analysis
In Part I of this series, we explored Grinold’s Fundamental Law of Active Management, and why the theory leads to misguided conclusions in the presence of asset correlations. In this article we will offer a primer on a useful tool for portfolio evaluation, Principal Component Analysis (PCA), and illustrate how PCA can help quantify the number of independent bets in a portfolio of correlated assets.
Keep ReadingApples and Oranges: A Random Portfolio Case Study
This article was motivated by a provocative discussion with a thoughtful RIA. Let’s call him Harry.
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