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 …
Lately, I’ve been thinking a lot about the Volatility Risk Premium (VRP). The VRP makes much more sense (to me, at least) when I have the Equity Risk Premium (ERP) for context and comparison. So, in this article, I want to discuss the ERP and the VRP, their similarities and differences, and how I seek …
In 2021, James, I, and a small team decided to set up a crypto trading venture. We faced several problems, but knowing almost nothing about crypto was the most significant. We sensed that the fractured, developing nature of the crypto market would likely be a good place to seek out inefficiencies, but beyond that, we …
In Australia, if you’re serious about getting the job done effectively and efficiently, you might say: “I’m not here to f*** spiders.” Many traders act like they are, indeed, here to f*** spiders. If you’re making soup, you first need a good stock. Stock isn’t exciting. Everyone has stock. Garnish is exciting, but you can’t …
If you have some factor that you think predicts future stock returns (or similar) and you are making charts like below, then here are some tips… We’ll go through an example of trying to “time” SPX with the level of VIX. You get daily SPX index prices and daily VIX close data You align them …
I’ve been helping a family friend with his trading. I’ve given him a simple systematic strategy to trade by hand. First, we set expectations We can plot the distribution of historic trade returns from past trading or a backtest as a histogram. This is useful because it gives us a hint as to what …
I have been sharing examples of simple real-time trading research on my Twitter account. I do this kind of thing a lot in the training program of our trading group – and I’m sharing in the hope that it might also help a wider audience. Here’s a piece of analysis I did recently on a really …
I’m a big fan of Ernie Chan’s quant trading books: Quantitative Trading, Algorithmic Trading, and Machine Trading. There are some great insights in there, but the thing I like most is the simple but thorough treatment of various edges and the quant tools you might use to research and trade them. Ernie explicitly states that …
Here’s a round-up of our new articles this week. They cover options trading, digital signal processing, data munging and Kris’s luxurious moustache… Trading Insanity! Every new trader tries out a few insane trading ideas! In a new series on the blog, Kris explores three insane trading strategies that tempted him back when he didn’t know any …
In this post, we look at tools and functions from the field of digital signal processing. Can these tools be useful to us as quantitative traders? What’s a Digital Signal? A digital signal is a representation of physical phenomena created by sampling that phenomena at discrete time intervals. If you think about the way we …
