Design for Assembly:
Design for assembly is a borrowed methodology from Mechanical Engineering that relies more in the synergies of different simple components of a holistic structured system instead of relying on single hyper complex model. As a results, it provides easy control, robustness and adaptivity to different market conditions.
This is the necessary approach to solve the infamous problem of risk management being orthogonal to the alpha model.
Risk Management aligned to Alpha:
Integrated dynamic stop losses are underrated because difficult to be implemented in complicated Machine Learning models.
Exogenous Risk Limits being activated too late, because not integrated in the alpha process, can exacerbate the bad performance because preventing the recovering of the strategy.
On the contrary, in our case because of the modular portfolio construction derived from the Design for Assembly approach, it is straightforward to align the risk management to each alpha signal component. Our Risk Management is endogenous to the system and ex ante.
As result, our stop losses are effective and crucial for the all system functionality.
Stop loss at work:
During the market crash -10% on Monday the 5th of August 2024 the strategy lost only 26bps with 3 Long Only trades.
This was fundamental for the strategy to adapt to the new market conditions and to prepare to gain in the new market conditions.
The Alpha Generation Process:
is composed not by a single supermodel but by many different signals triggered in sequence to achieve the same goal, like a chess strategy.
BeyondQuant: an Innovative methodology beyond common quant strategies
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The material contained in this website is based upon proprietary information and is provided purely for reference and as such is confidential and intended for private use only. The text and figures and schemes or any portion thereof contained in this website may not be stored in a computer, published, rewritten for broadcast or publication or redistributed in any medium, except with the express written permission of the author.
This is not an investment advice or solicitation; the only intent is for pure academic research purposes for qualified persons. Do your own Research.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Any investment involves a significant degree of risk.