Kris Longmore 
Last week, I wrote a short article about statistical arbitrage trading in the real world. Statistical arbitrage is a well-understood concept: find pairs or baskets of assets you expect to move together, wait for them to diverge, and bet on them converging again. Simple enough. But making it work, especially at scale, is a little …
In textbooks, one often sees pairs trading algorithms start by regressing prices of Asset A on Asset B to calculate a hedge ratio. I’ve rarely seen anyone actually do this in the real world. That’s because it is a very unstable thing – especially for a pair of volatile assets, and especially over a large …
Here in Australia, we’re right in the depths of the silly season. We indulge in long lunches, take days off work, and generally let our hair down. In that spirit, I thought I might have some fun punting shitcoins. (Maybe my definition of fun differs from yours, but let’s run with it). For the uninitiated, …
Let’s talk about carry trades. First, what exactly is a carry trade? A carry trade is a trade that pays you to hold it. A position where, if nothing changes except the passing of time, you expect to make money. Let’s go through some examples. FX carry The classic example is the FX carry trade, …
Disclaimer: the links in this post are affiliate links. If you use them to purchase a TradingView subscription, you’ll receive $15 in addition to the massive Black Friday discounts TradingView is currently running. We’ll receive a few dollars, too – so thanks in advance if you purchase using our link. I’m sure you’ve heard of TradingView. …
The Equal Risk Contribution (ERC) portfolio seeks to maximally diversify portfolio risk by equalising the risk contribution of each component. The intuition is as follows: Imagine we have a 3-asset portfolio Assets 1 and 2 are perfectly correlated (correlation of 1.0) Asset 3 is uncorrelated with the other two (correlation of 0.0) Let’s say we …
Exponential weighting schemes can help navigate the trade-off between responsiveness and stability of the inherently noisy estimates we make from market data. We previously saw examples of calculating the exponentially weighted moving average of a vector, and estimating the correlation between SPY and TLT using an exponential weighting scheme [link]. In this article, we’ll implement …
Using Exponentially Weighted Moving Averages to navigate trade-offs in systematic trading A big part of the job of the indie trader is data analysis. We’re always looking in the past data to validate (or more often, invalidate) a hypothesis about what might predict future returns. And one could argue that recent data is more useful …
Your job, as a trader, is to take all the information we have available now and make a judgment on whether something is trading at the right price or not, given things you can know here: Is it the wrong price? Can we buy it too cheap, or sell it too rich? Let’s say we …
I’ve previously discussed the Volatility Risk Premium (VRP) and how it differs from the Equity Risk Premium (ERP). Probably the most interesting difference, from the perspective of the trader, is that the VRP may be somewhat amenable to timing – more than the ERP at any rate. In this article, I’ll use some of the …
