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! October 2, 2018 " Jonathan
# Algorithmic Trading, Day Trading, Equities, Equity Futures, ETFs, F/X,
Foreign Exchange, Futures, Hedge Funds, Market Timing, Momentum
Strategies, Options, Portfolio Management, Quantitative Research, S&P500
Index, Swing Trading, Trading October
$ No comments 2018

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Quant Strategies – Performance 8 9 10 11 12 13 14

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Summary Sept. 2018 22 23 24 25 26 27 28

29 30 31

« Sep

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The end of Q3 seems like an appropriate time for an across-the-piste Categories

review of how systematic strategies are performing in 2018. I’m using the
dozen or more strategies running on our Systematic Algotrading Platform Categories
as the basis for the performance review, although results will obviously Select Category
vary according to the specifics of the strategy. All of the strategies are
traded live and performance results are net of subscription fees, as well as
slippage and brokerage commissions.
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Algorithmic
ADL
Volatility Strategies Trading
Cointegration
Those waiting for the hammer to fall on option premium collecting
strategies will have been disappointed with the way things have turned out
Correlation Direction
so far in 2018. Yes, February saw a long-awaited and rather spectacular Prediction E-mini Equities

explosion in volatility which completely destroyed several major volatility ETFs Financial
funds, including the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) engineering
as well as Chicago-based hedged fund LJM Partners (“our goal is to Forecasting
preserve as much capital as possible”), that got caught on the wrong side Futures Genetic
of the popular VIX carry trade. But the lack of follow-through has given High
Programming
many volatility strategies time to recover. Indeed, some are positively
Frequency
thriving now that elevated levels in the VIX have finally lifted option
premiums from the bargain basement levels they were languishing in prior
Trading Kalman Filter
Kurtosis Long Memory
to February’s carnage. Our Option Trader strategy is a stand-out in this
regard: not only did the strategy produce exceptional returns during the Machine
February melt-down (+27.1%), the strategy has continued to outperform as Learning Market
the year has progressed and YTD returns now total a little over 69%. Nor Microstructure Market
is the strategy itself exceptionally volatility: the Sharpe ratio has remained Timing
consistently above 2 over several years. Mathematica
Matlab Mean Reversion

Hedged Volatility Trading Momentum Money

Management Monte Carlo

Investors’ chief concern with strategies that rely on collecting option MultiFactor Models Options
premiums is that eventually they may blow up. For those looking for a Pairs Trading Portfolio
more nuanced approach to managing tail risk our Hedged Volatility Management Programming

strategy may be the way to go. Like many strategies in the volatility space Regime Shifts Robustness
the strategy looks to generate alpha by trading VIX ETF products; but S&P500 Index Scalping SPY
unlike the great majority of competitor offerings, this strategy also uses Statistical Arbitrage
ETF options to hedge tail risk exposure. While hedging costs certainly acts Stocks Systematic
as a performance drag, the results over the last few years have been
Strategies Systematic
compelling: a CAGR of 52% with a Sharpe Ratio close to 2.
Trading Tradestation VIX VIX

Futures VIX Index

F/X Strategies Volatility Volatility
Dynamics
One of the common concerns for investors is how to diversify their
investment portfolios, especially since the great majority of assets (and

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Quant Strategies in 2018 02.10.2018, 15)18

strategies) tend to exhibit significant positive correlation to equity indices. Blogroll

One of the characteristics we most appreciate about F/X strategies in
general and our F/X Momentum strategy in particular is that its correlation David Stockman's Contra
to the equity markets over the last several years has been negligible. Corner
Other very attractive features of the strategy include the exceptionally high EP Chan Quantitative
win rate – over 90% – and the profit factor of 5.4, which makes life very Trading
comfortable for investors. After a moderate performance in 2017, the Factor Wave
strategy has rebounded this year and is up 56% YTD, with a CAGR of 64.5% Quant at Risk
and Sharpe Ratio of 1.89. Quant News
Quant Stackexchange
Quantocracy
Equity Long/Short QuantStrat TradeR
QUSMA (Alexander
Thanks to the Fed’s accommodative stance, equity markets have been
Pagonidis)
generally benign over the last decade to the benefit of most equity long-
Seeking Alpha
only and long-short strategies, including our equity long/short Turtle
System Trader Success
Trader strategy , which is up 31% YTD. This follows a spectacular 2017
Systematic Investor
(+66%) , and is in line with the 5-year CAGR of 39%. Notably, the
The Aleph Blog
correlation with the benchmark S&P500 Index is relatively low (0.16), while
Trading the Odds
the Sharpe Ratio is a respectable 1.47.
VIX and More
Wolfram Demonstrations

Equity ETFs – Market Timing/Swing Trading Project

Zero Hedge
One alternative to the traditional equity long/short is our Tech Momentum
strategy. This is a swing trading strategy that exploits short term
momentum signals to trade the ProShares UltraPro QQQ (TQQQ)
and ProShares UltraPro Short QQQ (SQQQ) leveraged ETFs. The strategy is
enjoying a banner year, up 57% YTD, with a four-year CAGR of 47.7% and
Sharpe Ratio of 1.77. A standout feature of this equity strategy is its
almost zero correlation with the S&P 500 Index. It is worth noting that this
strategy also performed very well during the market decline in Feb,
recording a gain of over 11% for the month.

Futures Strategies
It’s a little early to assess the performance of the various futures strategies
in our portfolio, which were launched on the platform only a few months

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ago (despite being traded live for far longer). For what it is worth, both of
our S&P 500 E-Mini strategies, the Daytrader and the Swing Trader, are
now firmly in positive territory for 2018. Obviously we are keeping a
watchful eye to see if the performance going forward remains in line with
past results, but our experience of trading these strategies gives us cause
for optimism.

Conclusion: Quant Strategies in 2018

There appear to be ample opportunities for investors in the quant sector
across a wide range of asset classes. For investors with equity market
exposure, we particularly like strategies with low market correlation that
offer significant diversification benefits, such as the F/X
Momentum and F/X Momentum strategies. For those investors seeking
the highest risk adjusted return, option selling strategies like our Option
Trader strategy are the best choice, while for more cautious investors
concerned about tail risk the Hedged Volatility strategy offers the security
of downside protection. Finally, there are several new strategies in
equities and futures coming down the pike, several of which are already
showing considerable promise. We will review the performance of these
newer strategies at the end of the year.

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