Get Started

Can We Use Active Share Measure as a Predictor?

December 12, 2024

Active Share is a popular metric used to gauge how actively managed a portfolio is compared to its benchmark, but its predictive power for fund performance is questionable. Our research suggests that high Active Share often reflects exposure to systematic equity factors rather than genuine stock-picking skill. Additionally, inaccuracies in benchmark selection can distort the metric’s insights, making it unreliable as a standalone measure. A more effective approach is to conduct a factor analysis of alpha to better understand a manager’s performance and true sources of over/underperformance.

Continue reading »

How to Build Mean Reversion Strategies in Currencies

October 25, 2024

Our article explores a simple mean reversion trading strategy applied to FX futures, focusing on identifying undervalued and overvalued currencies to generate returns. Using FX futures rather than spot rates allows for the inclusion of interest rate differentials, simplifying the analysis. The strategy employs two position-sizing methods—linear and exponential—both rebalanced monthly based on currency deviations from their mean. While the linear method offers stability, its returns are limited. In contrast, the exponential method, despite higher risk and deeper drawdowns, ultimately delivers stronger growth and better overall performance by leveraging the mean reversion tendencies of FX pairs.

Continue reading »

How to Improve ETF Sector Momentum

October 10, 2024

In this article, we explore the historical performance of sector momentum strategies and examine how their alpha has diminished over time. By analyzing the underlying causes behind this decline, we identify key factors contributing to the underperformance. Most importantly, we introduce an enhanced approach to sector momentum, demonstrating how this solution significantly improves the performance of an ETF sector momentum strategy, making it once again an effective tool for systematic investors.

Continue reading »

Revisiting Trend-following and Mean-reversion Strategies in Bitcoin

September 12, 2024

Over the past few years, significant shifts in the financial landscape have reshaped the dynamics of global markets, including the cryptocurrency sector. Events such as the ongoing war in Ukraine, rising inflation rates, the soft landing scenario in the US economy, and the recent Bitcoin halving have all profoundly impacted market sentiment and price movements. Given these developments, we decided to revisit and reassess trading strategies, specifically Trend-following and Mean-reversion in Bitcoin published in 2022, which utilized data from November 2015 to February 2022. This new study explores how these strategies would have performed from November 2015 to August 2024, taking recent changes into account. The study also examines market changes between February 2022 and August 2024, highlighting developments since previous research. Additionally, it evaluates the influence of seasonality on Bitcoin’s price action, similar to our previous article – The Seasonality of Bitcoin. By analyzing these factors, we aim to provide deeper insights into the evolving behavior of the world’s leading cryptocurrency and guide investors through the complexities of today’s market environment.

Continue reading »