Diversifying Cyclicality Risk of Quantitative Investment Strategies (Presentation Slides)

Abstract

What is the most significant contributing factor to the performance of a quantitative fund: its signal generators or its risk allocators? Can we still succeed if we have good signal generators but poor risk management?

We consider the risk of the skewness and the cyclicality of the key quantitative strategies: 1. Carry strategies 2. Volatility strategies 3. Trend-following strategies

We then present the two approaches for diversification of the cyclicality risk for a master portfolio of these strategies using: 1. Top-down allocation 2. Bottom-up allocation

We illustrate a few examples using back-tested data using systematic quantitative strategies with risk-based allocators.

Keywords: Volatility, Trading, Investment Strategies, Momentum, Volatility, Skewness, Risk parity, trend following

JEL Classification: G10,11,12