{"id":7758,"date":"2020-07-30T15:37:55","date_gmt":"2020-07-30T13:37:55","guid":{"rendered":"https:\/\/quantpedia.com\/?p=7758"},"modified":"2025-06-04T14:30:42","modified_gmt":"2025-06-04T12:30:42","slug":"the-effectivity-of-selected-crisis-hedge-strategies","status":"publish","type":"post","link":"https:\/\/vvv.quantpedia.com\/es\/the-effectivity-of-selected-crisis-hedge-strategies\/","title":{"rendered":"The Effectivity of Selected Crisis Hedge Strategies"},"content":{"rendered":"<h2 class=\"wp-block-heading\">Introduction<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">During past months we made a set of articles analyzing the performance of&nbsp;<a rel=\"noreferrer noopener\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/ytd-performance-of-equity-factors-update-after-two-months\/\" target=\"_blank\">equity factors<\/a>&nbsp;and&nbsp;<a rel=\"noreferrer noopener\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/ytd-performance-of-crisis-hedge-strategies\/\" target=\"_blank\">selected systematic strategies<\/a>&nbsp;during coronavirus crisis. These articles were short-ranged with data only from the start of the year 2020, which is enough for the purpose of the quick blog posts, but very short-sighted to see the nature of these strategies. Therefore, we expanded the time range by 20 years. For a better understanding of hedge possibilities of these strategies, we have added a comparison to essential safe-haven assets, not only to equities.<\/p>\n\n\n\n<center>Video summary:<\/center>\n\n\n\n<figure class=\"wp-block-embed-youtube wp-block-embed is-type-video is-provider-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio responsive-video wp-embed-aspect-4-3\"><div class=\"wp-block-embed__wrapper\">\n<iframe title=\"Crisis Hedge Trading Strategies - Quantpedia Explains (Trading Strategies)\" width=\"800\" height=\"450\" src=\"https:\/\/www.youtube.com\/embed\/I9v6mAGiXZ0?list=PLxHtPNfvTm82UAYawJjOsdgM1zQ7c2T76\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">In this article, we are analyzing three groups of strategies\/assets and their performance during the equity market downturn, which we defined as months with a negative performance of SPY ETF. As usually, strategies are coded in <a href=\"https:\/\/www.quantconnect.com\/?utm_source=sdkfjssdfgsdm5qwlks8323dslkdfjsx246s30dlsaaslgk?ref=radovanvojtko\" target=\"_blank\" rel=\"noreferrer noopener\">QuantConnect<\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">First of these three groups contains systematic&nbsp;<a rel=\"noreferrer noopener\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/bear-market-trading-strategies\/\" target=\"_blank\">Crisis Hedge strategies<\/a>, namely&nbsp;<a rel=\"noreferrer noopener\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/currency-momentum-factor\/\" target=\"_blank\">Currency Momentum Factor<\/a>,&nbsp;<a rel=\"noreferrer noopener\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/momentum-effect-in-commodities\/\" target=\"_blank\">Commodity Momentum Factor<\/a>,&nbsp;<a rel=\"noreferrer noopener\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/time-series-momentum-effect\/\" target=\"_blank\">Time Series Momentum Effect<\/a>&nbsp;and&nbsp;<a rel=\"noreferrer noopener\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/skewness-effect-in-commodities\/\" target=\"_blank\">Skewness Effect in Commodities<\/a>. Chosen strategies should perform well at the market downturn (at least the source papers by which the strategies are built state that).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Currency momentum is beside others mentioned in the paper by&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=2619146\">Grobys, Heinonen and Kolari (2016)<\/a>, which shows its ability to be a hedge for global economic risk. Also, the momentum effect in commodities is a good hedge strategy as it has been shown in the paper by&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=2265901\">Blitz and Groot (2013)<\/a>, which analyze the risk-adjusted performance of commodity market factors portfolio. The hedging possibilities of time-series momentum effect and skewness effect in commodities are analyzed in the paper from&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"http:\/\/pages.stern.nyu.edu\/~lpederse\/papers\/TimeSeriesMomentum.pdf\">Moskowitz, Ooi and Pedersen (2011)<\/a>, resp.&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=2671165\">Perez, Frijns, Fuertes and Miffre (2017)<\/a>&nbsp;which are also the source papers of these strategies. Source paper of these strategies and other mentioned papers designate them to be possibly used as a hedge during the market turmoil, but this claim should be tested by their performance. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Time series in Figure 1 could tell us that the currency momentum is the worst candidate for hedging from mentioned systematic strategies as its performance during the observed period is negative. However, what truly matters are results only during the downturn.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img fetchpriority=\"high\" decoding=\"async\" width=\"605\" height=\"352\" src=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/wp-content\/uploads\/2020\/07\/Untitled-284-Systematic-Crisis-Hedge-Strategies.jpg\" alt=\"Systematic Crisis Hedge Strategies\" class=\"wp-image-7780\" srcset=\"https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-284-Systematic-Crisis-Hedge-Strategies.jpg 605w, https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-284-Systematic-Crisis-Hedge-Strategies-300x175.jpg 300w\" sizes=\"(max-width: 605px) 100vw, 605px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>Figure 1 Time series of Systematic crisis hedge strategies<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The second group consist of basic equity factor strategies \u2013&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/value-book-to-market-factor\/\">value<\/a>,&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/small-capitalization-stocks-premium-anomaly\/\">size<\/a>,&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/short-term-reversal-in-stocks\/\">reversal<\/a>,&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/roa-effect-within-stocks\/\">quality<\/a>,&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/momentum-factor-effect-in-stocks\/\">momentum<\/a>,&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/low-volatility-factor-effect-in-stocks-long-only-version\/\">low volatility<\/a>&nbsp;and&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/investment-factor\/\">investment<\/a>. However, not all of these factors could be used as a hedge what&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3620691\">Geertsema and Lu (2020)<\/a>&nbsp;exhibited in their paper, where they studied factors performance during overwhelming period reaching times before the Vietnam War. Which factors can be used as a hedge and how good they are, we will discuss further in the article. From the time series in Figure 2, we can see the wide dispersion of performances during the observed period ranging from -75% to 560%. To build equity factor strategies, we used data from Morningstar.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img decoding=\"async\" width=\"605\" height=\"352\" src=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/wp-content\/uploads\/2020\/07\/Untitled-285-Systematic-Equity-Factor-Strategies.jpg\" alt=\"Systematic Equity Factor Strategies\" class=\"wp-image-7781\" srcset=\"https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-285-Systematic-Equity-Factor-Strategies.jpg 605w, https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-285-Systematic-Equity-Factor-Strategies-300x175.jpg 300w\" sizes=\"(max-width: 605px) 100vw, 605px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>Figure <\/strong><strong>2<\/strong><strong> Time series of Equity factor strategies<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The last, third, group contains the safe-haven assets, which we will use to compare the hedging possibilities of chosen systematic strategies in the first two groups. This group contains Gold futures, 10 years US Treasuries futures and USD TWI (trade-weighted) futures.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img decoding=\"async\" width=\"605\" height=\"352\" src=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/wp-content\/uploads\/2020\/07\/Untitled-286-Safe-haven-assets.jpg\" alt=\"Safe-haven assets\" class=\"wp-image-7783\" srcset=\"https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-286-Safe-haven-assets.jpg 605w, https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-286-Safe-haven-assets-300x175.jpg 300w\" sizes=\"(max-width: 605px) 100vw, 605px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>Figure 3 Time series of safe-haven assets<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Building of systematic strategies<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">How are the systematic strategies built? To save space and not repeat ourselves, we will not repeat trading rules in this article. Readers can review both previous articles where trading rules are specified:<br><a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/ytd-performance-of-crisis-hedge-strategies\/\">YTD Performance of Crisis Hedge Strategies<\/a><br><a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/ytd-performance-of-equity-factors\/\">YTD Performance of Equity Factors<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Hedging effectivity of systematic crisis hedge strategies<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">For better visualization of strategies performance, we divided the time series into two datasets \u2013 2000-2010 and 2010-2020 (as you can see in Figure 4), because of the different nature of the times before 2010 and after then. The first decade of this century was represented with two big market crashes, and thereafter the performance of the stock market wasn\u2019t much satisfying. The exact opposite was the following decade where there was no stock market crash, and prices soared to new and new highs. At the start of this decade, the coronavirus crisis hit the global economy and so the financial markets, but we won\u2019t be writing further about it as it hasn\u2019t ended yet.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">All systematic strategies performed much better throughout the first decade in comparison to the second, which implies that precarious period suits them better than steady growth. In both periods, the&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/time-series-momentum-effect\/\">Time Series Momentum Effect<\/a>&nbsp;dominated and also was the best strategy in the average performance in downside months of equity market represented by SPY ETF (tracking S&amp;P 500; available finance.yahoo.com). The only negative performer was the&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/currency-momentum-factor\/\">Currency Momentum Factor<\/a>&nbsp;strategy which was slightly positive in the first decade but turned downwards in the last five years. The two remaining strategies \u2013&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/momentum-effect-in-commodities\/\">Commodity Momentum Factor<\/a>&nbsp;and&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/skewness-effect-in-commodities\/\">Skewness Effect in Commodities<\/a>&nbsp;performed almost equal sufficiently in the first period but diverged in the last year of our observed period when&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/momentum-effect-in-commodities\/\">Commodity Momentum Factor<\/a>&nbsp;ended the second decade with nearly neutral performance, and&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/skewness-effect-in-commodities\/\">Skewness Effect in Commodities<\/a>&nbsp;jumped to 100% gain like&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/strategies\/time-series-momentum-effect\/\">Time Series Momentum Effect<\/a>.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"621\" height=\"292\" src=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/wp-content\/uploads\/2020\/07\/Untitled-287-Systematic-Crisis-Hedge-Strategies-divided-to-2-halves.jpg\" alt=\"\" class=\"wp-image-7786\" srcset=\"https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-287-Systematic-Crisis-Hedge-Strategies-divided-to-2-halves.jpg 621w, https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-287-Systematic-Crisis-Hedge-Strategies-divided-to-2-halves-300x141.jpg 300w\" sizes=\"(max-width: 621px) 100vw, 621px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>Figure 4 Divided time series of Systematic crisis hedge strategies<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The performance of equity factor strategies during equity downside months is in Figure 5. We can see the same story; strategies with the best total performance are also the best hedge. Equities in downside months lost in average 3.6%, all systematic strategies had positive performance (except Currency Momentum Factor, which is surprisingly neutral = -9.4e-05). So, on the average, crisis hedge strategies really worked as a diversification during equity downturns.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"605\" height=\"269\" src=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/wp-content\/uploads\/2020\/07\/Untitled-287-Systematic-Crisis-Hedge-Strategies-hedging-effectivity.jpg\" alt=\"Hedging effectivity of crisis hedge strategies\" class=\"wp-image-7789\" srcset=\"https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-287-Systematic-Crisis-Hedge-Strategies-hedging-effectivity.jpg 605w, https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-287-Systematic-Crisis-Hedge-Strategies-hedging-effectivity-300x133.jpg 300w\" sizes=\"(max-width: 605px) 100vw, 605px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>Figure 5 Systematic crisis hedge strategies average performance in downside months<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For those who are interested, we also present the downside correlation to equities in Figure 6.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"605\" height=\"265\" src=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/wp-content\/uploads\/2020\/07\/Untitled-289-Systematic-Crisis-Hedge-Strategies-downside-correlation.jpg\" alt=\"\" class=\"wp-image-7790\" srcset=\"https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-289-Systematic-Crisis-Hedge-Strategies-downside-correlation.jpg 605w, https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-289-Systematic-Crisis-Hedge-Strategies-downside-correlation-300x131.jpg 300w\" sizes=\"(max-width: 605px) 100vw, 605px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>Figure 6 Systematic crisis hedge strategies correlation to equities in downside months<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Hedging effectivity of systematic equity factor strategies<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">As we mentioned earlier, not all of the equity factors could be <a href=\"https:\/\/www.wallstreetoasis.com\/resources\/skills\/trading-investing\/over-hedging\">used as a hedge to equities<\/a>.&nbsp;<a href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/the-risk-in-equity-risk-factors\/\" target=\"_blank\" rel=\"noreferrer noopener\">Geertsema and Lu (2020)<\/a>&nbsp;who made similar analysis as we did beside others also with&nbsp;<a href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=2668236\" target=\"_blank\" rel=\"noreferrer noopener\">Fama and French factors (2018)<\/a>, shows that historically the value, profitability, investment and momentum factors had better performance in bear markets, although during recent coronavirus crisis only the Momentum and Quality factors were profitable.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">During the first decade of our observed period in Figure 7, only the momentum factor wasn\u2019t profitable because of several turnovers during this period where the strategy couldn\u2019t build solid momentum base. On the other hand, the Equity factor strategies that have much better performance in both periods and therefore also overall are Quality and Reversal factor strategies with a return about 600%, resp. 400%. We cannot also omit Size, Low volatility and Value factor strategies. Their performance was stable with moderate growth during both periods (although Investment factor strategy\u2019s performance quite decreased by the end of 2019). A specific case is the Value factor strategy, which gained more than 100% in the trembling times of the first decade, but lost all outperformance and ended negative through the second one.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"600\" height=\"293\" src=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/wp-content\/uploads\/2020\/07\/Untitled-290-Systematic-Equity-Factor-Strategies-divided-to-2-halves.jpg\" alt=\"\" class=\"wp-image-7792\" srcset=\"https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-290-Systematic-Equity-Factor-Strategies-divided-to-2-halves.jpg 600w, https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-290-Systematic-Equity-Factor-Strategies-divided-to-2-halves-300x147.jpg 300w\" sizes=\"(max-width: 600px) 100vw, 600px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>Figure 7 Divided time series of equity factor strategies<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">With the average equity performance in downside months at the level of -3.6%, the individual Equity factor strategies presented themselves as interesting hedgers. The worst result was -0.4% for Value and Reversal factor, as you can see in figure 8. All other factors ended with positive average performance in downside months where the leaders were Quality and Momentum factor strategies with average performance 2.1%, resp. 1.6%.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"605\" height=\"265\" src=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/wp-content\/uploads\/2020\/07\/Untitled-291-Systematic-Equity-Factor-Strategies-hedging-effectivity.jpg\" alt=\"\" class=\"wp-image-7793\" srcset=\"https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-291-Systematic-Equity-Factor-Strategies-hedging-effectivity.jpg 605w, https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-291-Systematic-Equity-Factor-Strategies-hedging-effectivity-300x131.jpg 300w\" sizes=\"(max-width: 605px) 100vw, 605px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>Figure 8 Equity factor strategies average performance in downside months<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The Equity factor strategies correlation to equities in downside months validate most of the average performance results. The biggest incoherency is in Size factor strategy, which has a positive correlation with equities but had a positive average performance in downside months and the Reversal factor strategy which has the largest correlation to equities at the level of 26.23% but its average performance was only -0.4% in comparison with equities -3.6%.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"605\" height=\"265\" src=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/wp-content\/uploads\/2020\/07\/Untitled-292-Systematic-Crisis-Hedge-Strategies-downside-correlation.jpg\" alt=\"\" class=\"wp-image-7794\" srcset=\"https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-292-Systematic-Crisis-Hedge-Strategies-downside-correlation.jpg 605w, https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-292-Systematic-Crisis-Hedge-Strategies-downside-correlation-300x131.jpg 300w\" sizes=\"(max-width: 605px) 100vw, 605px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>Figure 9 Equity factor strategies correlation to equities in downside months<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Hedging effectivity of safe-haven assets<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">We won\u2019t be especially commenting on the safe-haven group because they are quite known, and we are using them mainly to compare chosen Systematic strategies and Equity factor strategies performance. From the time series in Figure 10, we can see that the Gold futures are much more volatile in comparison with US Treasury futures or USD futures but also has the highest growth potential. We can\u2019t say that about the dollar, but it can be at least be used only as a store of value with no growth throughout the two decades.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"612\" height=\"295\" src=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/wp-content\/uploads\/2020\/07\/Untitled-293-Safe-haven-assets-divided-to-2-halves.jpg\" alt=\"\" class=\"wp-image-7807\" srcset=\"https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-293-Safe-haven-assets-divided-to-2-halves.jpg 612w, https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-293-Safe-haven-assets-divided-to-2-halves-300x145.jpg 300w\" sizes=\"(max-width: 612px) 100vw, 612px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>Figure 10 Divided time series of safe-haven assets<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In Figure 11, we can see that the average performance of safe-haven assets was positive \u2013 as expected. The leaders are treasury futures (1%), which also had the steadiest growth in this group. The others do not lag much behind the bonds with the gold growth of 0.7% and the dollar growth of 0.6%.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"605\" height=\"265\" src=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/wp-content\/uploads\/2020\/07\/Untitled-294-Safe-haven-assets-hedging-effectivity.jpg\" alt=\"\" class=\"wp-image-7809\" srcset=\"https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-294-Safe-haven-assets-hedging-effectivity.jpg 605w, https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-294-Safe-haven-assets-hedging-effectivity-300x131.jpg 300w\" sizes=\"(max-width: 605px) 100vw, 605px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>Figure 11 Safe haven assets average performance in downside months<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The interesting thing in Figure 12 is that gold futures have a positive correlation to equities in downside months even when they exhibit positive performance. The reason for that may be because, during the largest drops in equities price, the&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/www.bloomberg.com\/news\/articles\/2020-02-28\/as-gold-pauses-stanchart-detects-margin-calls-in-equities-rout\">gold\u2019s price is weakening alike as it is used to cover margin calls<\/a>. However, the drop isn\u2019t as large and tends to recover faster than the equities, so that\u2019s why the positive performance.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"605\" height=\"265\" src=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/wp-content\/uploads\/2020\/07\/Untitled-295-Safe-haven-assets-downside-correlation.jpg\" alt=\"\" class=\"wp-image-7810\" srcset=\"https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-295-Safe-haven-assets-downside-correlation.jpg 605w, https:\/\/vvv.quantpedia.com\/wp-content\/uploads\/2020\/07\/Untitled-295-Safe-haven-assets-downside-correlation-300x131.jpg 300w\" sizes=\"(max-width: 605px) 100vw, 605px\" \/><\/figure>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong>Figure 12 Safe haven assets correlation to equities in downside months<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">This article intended to analyze and test chosen&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/screener\/?FilterHedgeToEquitis=Yes\">systematic crisis hedge strategies<\/a>&nbsp;and&nbsp;<a rel=\"noreferrer noopener\" target=\"_blank\" href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/screener\/?FilterMarkets=equities&amp;FilterKeywords=factor+investing\">equity factor strategies<\/a>&nbsp;during equity market downside months and compare these results with well known safe-haven assets. The systematic strategies should have the ability to be used as a hedge because the source papers of these strategies propose it. In the equity factor strategies group, we just wanted to test these factors if they possess the ability to be used as a hedge during the equity market turmoil.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It seems that we can accept our hypothesis for all tested strategies because all of them performed a way better than equities during negative months. Firstly, let\u2019s check our benchmarks \u2013 the average performance of equities in downside months was negative -3.6% and the safe-havens represented by Gold futures, US Treasury futures and USD futures performed positively 0.7%, 1% and 0.6%.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The results of the first group, systematic crisis hedge strategies were around the level of safe-haven assets (except for the currency momentum factor, which disappointed). But even the worst performer ended with neutral average performance (0%) which is still much better than equities -3.6%.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The results for the second group, equity factor strategies, were more heterogeneous with the worst two strategies Value and Reversal factors with an equal performance of -0.4% and the best Quality factor strategy with 2.1% return. Also, the Momentum factor strategy outperformed safe-haven assets with a 1.6% gain. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Overall, we can conclude that there isn&#8217;t a scarcity of strategies that could be used as a hedge during equity market crisis.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Authors:<\/strong><br><strong>Radovan Vojtko<\/strong>, CEO &amp; Head of Research, Quantpedia<br><strong>Dominik Cisar<\/strong>, Quant Analyst, Quantpedia<\/p>\n\n\n\n<hr class=\"wp-block-separator has-css-opacity\"\/>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Are you looking for strategies applicable in bear markets? Check <a href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/bear-market-trading-strategies\/\">Quantpedia\u2019s Bear Market Strategies<\/a><\/strong><\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p class=\"wp-block-paragraph\" id=\"block-854363cc-8450-4dc0-a06a-c737766e9431\"><strong>Are you looking for more strategies to read about? <a href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/sign-up-for-our-newsletter\/\">Sign up for our newsletter<\/a> or visit our <a href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/blog\/\">Blog<\/a> or <a href=\"http:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/Screener\">Screener<\/a><\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\" id=\"block-65925002-6290-4d3b-b5cd-f3a277851ec8\"><strong>Do you want to learn more about Quantpedia Premium service? 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Check its <a href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/how-it-works\/quantpedia-pro\/\">description<\/a>, watch <a href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/how-it-works\/quantpedia-explains\/\">videos<\/a>, review <a href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/how-it-works\/quantpedia-pro-reports\/\">reporting capabilities<\/a> and visit our <a href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/pricing-pro\/\">pricing offer<\/a>.<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\" id=\"block-21942b3a-14d9-4c0f-b8ef-04d64675e253\"><strong>Are you looking for historical data or backtesting platforms? Check our list of&nbsp;<a href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/links-tools\/?category=algo-trading-discounts\">Algo Trading Discounts<\/a><\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Would you like free access to <a href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/pricing\/\" title=\"\">our services<\/a>? Then, <a href=\"https:\/\/lightspeed.com\/lp\/quantpedia-lightspeed-financial-services-group-one-free-year-promotion\" title=\"\">open an account with Lightspeed<\/a> and enjoy one year of Quantpedia Premium at no cost.<\/strong><\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p class=\"wp-block-paragraph\" id=\"block-4c45d6c9-c8dd-4283-8743-bf573cfa4d45\"><strong>Or follow us on:<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\" id=\"block-476e95ed-31a5-4c4d-b701-5203f9fb2e24\"><strong>Facebook <a href=\"https:\/\/www.facebook.com\/groups\/quantstrategies\">Group<\/a>, Facebook <a href=\"https:\/\/www.facebook.com\/quantpedia\/\">Page<\/a>, <a href=\"https:\/\/twitter.com\/quantpedia\">Twitter<\/a>, <a href=\"https:\/\/www.linkedin.com\/company\/quantpedia\">Linkedin<\/a>, <a href=\"https:\/\/quantpedia.medium.com\/\">Medium<\/a> or <a href=\"https:\/\/www.youtube.com\/channel\/UC_YubnldxzNjLkIkEoL-FXg\">Youtube<\/a><\/strong><\/p>","protected":false},"excerpt":{"rendered":"<p><strong>During past months we made a set of articles analyzing the performance of <a href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/ytd-performance-of-equity-factors-update-after-two-months\/\"><strong>equity factors<\/strong><\/a> and <a href=\"https:\/\/\\\/\\\/new-fmhwbzh6ghd9hede.swedencentral-01.azurewebsites.net\/ytd-performance-of-crisis-hedge-strategies\/\"><strong>selected systematic strategies<\/strong><\/a> during coronavirus crisis. These articles were short-ranged with data only from the start of the year 2020, which is enough for the purpose of the quick blog posts, but very short-sighted to see the nature of these strategies. Therefore, we expanded the time range by 20 years. For a better understanding of hedge possibilities of these strategies, we have added a comparison to essential safe-haven assets, not only to equities.<\/p>\n<p><\/strong><\/p>","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[60,163,147,55,162,46,63,159,146,56,48,58,57],"class_list":["post-7758","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-equity-long-short","tag-factor-allocation","tag-factor-investing","tag-forex-system","tag-fundamental-analysis","tag-momentum","tag-momentum-in-stocks","tag-own-research","tag-smart-beta","tag-stock-picking","tag-trendfollowing","tag-value","tag-volatility-effect"],"_links":{"self":[{"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/posts\/7758","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/comments?post=7758"}],"version-history":[{"count":0,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/posts\/7758\/revisions"}],"wp:attachment":[{"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/media?parent=7758"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/categories?post=7758"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/tags?post=7758"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}