The second half of Q1 2020 turned out to be one of the most volatile periods ever for financial markets. The intensity and speed of the equity market sell-off has been unprecedented and market volatility has reached higher levels than during the peak of the financial crisis in 2008. The design of systematic trend-following programs involves many different building blocks, such as signal generation models, the structure of the investment universe, risk allocation targets between different asset classes, risk management models and portfolio construction methodology.
Why is a trend-following strategy profitable in a crisis? A simple example will suffice. If a short trade is triggered when the return (from some chosen benchmark) exceeds -1%, then the trade will be very profitable if the market ends up dropping -4%. Vice versa for a long trade. (As recent market actions have demonstrated, prices exhibit both left and right tail movements in a crisis.) The trick, of course, is to find the right benchmark for the entry, and to find the right exit condition.
Guest post by Brent Belote of Cayler Capital Russia broke the oil market! Russia and the Saudis have entered into a dangerous game of chicken with each other. Russia is determined to punish US Oil Producers while the Saudis are attempting to force OPEC+ back in line. To simplify, Russia would not comply with OPEC+ […]
We consider grains to be one of the most exciting markets for this year, an increase in the U.S. grain export will support prices, but only if the U.S. dollar stabilizes or declines. Corn and Wheat seem to be at a discount from their previous years’ price average; a definitive US-China trade deal could impact grains to have sharp moves in the year. We also anticipate an inflow of institutional money into grains that will move futures prices of different expiration. This is an optimal environment for our trading program.
The following is a guest post from Spring Valley Asset Management: Disclaimer: While an investment in managed futures can help enhance returns and reduce risk, it can also do just the opposite and in fact result in further losses in a portfolio. In addition, studies conducted of managed futures as a whole may not be […]
In February 2018, markets looked pretty dire for many option writers. The VIX had spiked 250% in less than a week and options sold a few days before were selling for many multiples of their original value. The biggest firm in the space, LJM Partners, went under and some of the best names faltered. Tianyou […]
While only time will tell if the potential impeachment of President Donald Trump is more sideshow than substance, the fallout from the impeachment inquiry and any subsequent hearings will likely pale in comparison to the potential ill effects of a destabilizing escalation in the trade war with China, an unanticipated surge in U.S. inflation data (which would, in turn, force the Federal Reserve to tighten rates in an aggressive fashion) or a continuation of the profligate spending policies of a spendthrift Congress. Ultimately, markets either rise or fall based upon the underlying health of the economy – not the political drama being staged in some Congressional hearing on Capitol Hill – and it is likely that the economic policies pursued by the Trump Administration (e.g., tax cuts, jobs growth, fair trade, rising corporate earnings, deregulation, etc.) have made the U.S. economy – and the U.S. stock market – more resilient to all manner of near-term shocks . . . even political ones.
Today Oil surged around 14% after the Saturday attack on Saudi Arabia Oil processing complex Abqaiq. Meanwhile, there is uncertainty as to if the Aramco will be able to restore full capacity, while the US is blaming Iran for the aerial attacks, increasing geopolitical Risk.
Disclaimer: While an investment in managed futures can help enhance returns and reduce risk, it can also do just the opposite and in fact result in further losses in a portfolio. In addition, studies conducted of managed futures as a whole may not be indicative of the performance of any individual CTA. The results of […]
This summer’s theme could well have been: How low can they go? The “they” was supply and demand. Unfortunately, the competition looked more like a cage match than a limbo contest. In that analogy the heavyweight match was certainly Prevent Plant (PP) versus African Swine Fever (ASF).
Last night was a great chance to opportunistically be long of risk, short the long end of the curve. We got some incrementally positive news on the China front on the Europe open and, risk pushed higher, and steepeners were put out. Bears were sent scrambling to wait for the grownups to come back from vacation.
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Noise and an overwhelming amount of data is the biggest challenge in managing money in 2019 (or anytime in the past decade). In the 1960s, 1970s, and even the 1980s, delivering alpha came down to having access to information others didn’t have – the process of obtaining data was a value-add. Today, we have the complete opposite problem. In 2019 we have too much information, and delivering alpha comes down to paring things back to their essence, stripping away unnecessary garbage.