A Multi Strategy Approach to Trading Foreign Exchange Futures
26 Pages Posted: 28 Jan 2019 Last revised: 5 Feb 2019
Date Written: January 25, 2019
In this article we present a systematic multi-strategy approach to trading foreign exchange futures for a managed futures portfolio. Our central finding is that there is more alpha to be derived from combining different indicators compared to hand engineering each indicator. We show that combining technical indicators like momentum and mean reversion with fx carry indicators leads to significant improvement over individual indicators. Through an end to end systematic portfolio construction methodology, including indicator construction, normalization and combination we are able to improve the Sharpe Ratio of the resulting portfolio over the best performing single indicator by 60% when evaluated in an unbiased walk forward backtest.
Code available in the Appendix
Keywords: Foreign Exchange, Derivatives, Portfolio Construction, Multi-strategy, Managed Futures
JEL Classification: C61, F31, G11, G12, G15
Suggested Citation: Suggested Citation