EXCELLENCE. KNOWLEDGE. EXTENSIVE.

understanding the art of

MULTI-STRATEGY
PORTFOLIOS 

COMBINING QUANTITATIVE
STRATEGIES EFFECTIVELY

BY
QUANTINSTI™ - ASIA'S PIONEER ALGORITHMIC
TRADING RESEARCH AND TRAINING INSTITUTE
 Table of Contents

03
Distribution Analysis of Trading Strategies

04
Strategies as investable securities, changing your mindset

05
Applying portfolio optimization and diversification

06
About the author

07
Reference links

08
About QuantInsti™

09
Executive Programme in Algorithmic Trading
 Distribution Analysis of Trading Strategies

Development of a successful algorithmic strategy is already a

difficult endeavor. However trading a single strategy can pose its
own set of risks, even if the strategy itself is robust and profitable.

So how do we as algorithmic traders understand exactly what our

systems are delivering, change our mindset from development to
implementation, and increase our risk adjusted returns?

Most traders are familiar with looking at standard performance

reports which have statistics like CAGR, Sharpe Ratio, and max
drawdown. But these single numbers only provide a small
glimpse into what the system is actually delivering. By adding
return distribution analysis to your tool kit, you will be able to have
a better grasp about what the system may produce on a more
granular level.

The most common method for classifying a trading system is

based on the entry type, either a momentum or mean reversion
style.  This in the end is subjective and constraining, as many
strategies will incorporate elements from both regimes. For
example, a mean reversion strategy may employ the use of a filter
that may have momentum characteristics. After this addition of
the filter is it still a mean reversion system?

This problem can be solved by using statistical methods in order to

classify strategies by their distribution’s descriptive statistics, rather
than by subjective type or style. By analyzing the skew, and looking
at the tails of our return distribution we can get a much better
indication of what the strategy is actually delivering. Thus allowing
us to make a quantitative judgement as to which regime it
belongs to.

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Strategies as investable securities, changing your
mindset

Most novice traders think of their strategies as standalone systems,

maintaining the same concept from ideation to implementation.
 However, there are two distinct environments, the vacuum of the
quantitative research laboratory, and the investment portfolio in
which you will execute your strategy. We need to consider the
implications of this implementation, and its effect on our current
portfolio and the fit into our investment mandate. The best way to
do that is to consider a strategy for allocation as an investable
security.

At its most fundamental level any strategy has a singular purpose.

Which is to deliver a return series with particular characteristics,
usually outsized risk adjusted returns. If this is the case, then we can
consider a strategy that has been funded as making a long bet on
that particular return series.

This is the same as investing in any stock, commodity, or other

asset.

Now there is basically no difference in motivation between

investing in your strategy and investing in any other asset or
security. You will allocate the most funds to those who exhibit
the most desirable characteristics, and less to those who do
not.

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Applying portfolio optimization and diversification

If we can accept this logic that investing in completed strategies, and

investing in any other asset is the same. Naturally, the next logical
step would be to create a portfolio. No one would recommend their
friend to buy only a single stock. So why would you as a systematic
trader only want to have one strategy?

We can now rely on two areas that have been heavily researched in
academia and practiced in the field for many decades, portfolio
optimization and diversification. By applying these very key principles
that go into creating a portfolio of traditional assets, we can create a
portfolio of multiple strategy systems. The same benefits that you get
from creating a portfolio of traditional assets, such as decreased
equity curve volatility and increase risk adjusted returns, can be then
transferred to your set of systematic trading strategies.

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 About the author

Derek Wong
Director of Systematic Trading at Foretrade Investment
Management Co. LTD

Derek is currently the Director of Systematic Trading at Foretrade

Investment Management Co. LTD based in mainland China. He is also
the Founder of Golden Compass Quantitative Research and a
Director of the Aquifer Institute a NFP think tank in Singapore.
Previously Derek did cross exchange statistical arbitrage in the
commodities space, and filled institutional order flow on the floor of
the Chicago Board of Trade.

Derek’s educational background is in Mechanical Engineering from

University of Illinois. He holds an E-MBA for Hejun Business School,
and certificate in Financial Engineering and Risk Management from
Columbia University.

Derek is also an alumnus of EPAT co-authoring a project on

Development of a Cloud-Based Automated Trading System with
Machine Learning for the capstone project.

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 Reference Links

Webinar:
Join us for our upcoming webinar on Multi-Strategy Portfolios
on Tuesday 16th May, 10:00 PM Beijing Time | 7:30 PM IST | 10:00 AM
EST

This one-of-a-kind webinar will explain how to combine different

quantitative strategies to create a multi-strategy portfolio, learn
portfolio optimization and the benefits offered by such portfolios.

Session Outline

Quantitatively classify strategies

Characteristics of strategy distribution types
Multiple strategy examples
Strategies as investable assets
Portfolio Optimization

Register Now!

Other articles to refer:

Volatility and measures of risk-adjusted return with Python
Performance Metrics, Risk Metrics, and Strategy Optimization – An
Overview
Algorithmic Trading Strategies, Paradigms and Modelling Ideas

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 About QuantInsti™

QuantInsti™ is one of Asia’s pioneer Algorithmic Trading Research

and Training Institute focused on preparing financial market
professionals for the contemporary field of Algorithmic and
Quantitative Trading. As the financial markets in emerging markets
are rapidly evolving like developed markets; we foresee a disruptive
change in the emerging markets landscape wherein exchange
volumes to the tune of 70% and above will be generated by
Algorithmic Trading.

QuantInsti™ institute developed the curriculum for the Asia’s first

Executive Programme in Algorithmic Trading (EPAT) in 2009. As an
initiative by financial markets professionals with stellar academic and
professional credentials, the program aims to fulfil the pressing
demands for highly specialized skill sets of a potentially lucrative
domain of Algorithmic Trading. QuantInsti™ opened the doors to
global participants in 2012 by introducing virtual classrooms for its
flagship EPAT course and have seen participation from all inhabited
continents since then.

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EPAT™– Executive Programme in Algorithmic Trading

The Executive Programme in Algorithmic Trading at QuantInsti is

designed for professionals looking to grow in the field, or planning to
start their careers in Algorithmic and Quantitative trading.
This comprehensive Algorithmic Trading course offers unparalleled
insights into the world of Algorithms, financial technology, and
changing Market Microstructure, following an exhaustive course
structure designed by leading Algorithmic Traders, Quantitative
experts and HFT thought leaders.

Duration – 6 months (4 months of training & 2 months of project

work)
Specialization – Particular Asset class and/or Algorithmic trading
strategy through the project work
Online Delivery – A focused learning experience consisting of
practical sessions conducted through web-meetings and virtual
learning environments
Certification – Assessment comprises of assignments, quiz, project
work and attendance. On successful completion participants will
receive a Certificate from QuantInsti Quantitative Learning Pvt Ltd

APPLY NOW

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 Contact Us:

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