Links to notebooks www.quantopian.com/posts/quantopian-lecture-series-the-good-the-bad-and-the-correlated www.quantopian.com/posts/quantopian-lecture-series-spearman-rank-correlation
Long short equity strategy is quite impressive but what if we create two stacks of equities (top percentile and bottom) in such a way that one equity stack is highly negatively correlated to the other equity stack but equities are totally uncorrelated within their own stack? Maybe that will give us better returns irrespective of market volatility or so-called black swan events? I know its vague idea but perhaps it may perform better? Any thoughts? Thanks!
If the stacks are negatively correlated then your strategy will not work during a market downturn. For example, if your long stack is negatively correlated with your short stack then during a market upturn your long stack and short stack will provide great returns. However during a market downswing you will double your loss because the stack you went long on will be decreasing in value and the stack you went short on will be increasing in value. If your stacks are highly correlated you lose the advantage of using a long short strategy because you are subject to market fluctuations.
please zoom in for all the videos, because the font size are too small to read. thanks
Great video! Looking forward to watching the rest!
-Ryan
Links to notebooks
www.quantopian.com/posts/quantopian-lecture-series-the-good-the-bad-and-the-correlated
www.quantopian.com/posts/quantopian-lecture-series-spearman-rank-correlation
Long short equity strategy is quite impressive but what if we create two stacks of equities (top percentile and bottom) in such a way that one equity stack is highly negatively correlated to the other equity stack but equities are totally uncorrelated within their own stack? Maybe that will give us better returns irrespective of market volatility or so-called black swan events? I know its vague idea but perhaps it may perform better? Any thoughts?
Thanks!
If the stacks are negatively correlated then your strategy will not work during a market downturn. For example, if your long stack is negatively correlated with your short stack then during a market upturn your long stack and short stack will provide great returns. However during a market downswing you will double your loss because the stack you went long on will be decreasing in value and the stack you went short on will be increasing in value. If your stacks are highly correlated you lose the advantage of using a long short strategy because you are subject to market fluctuations.
please create a vid for all these lectures
He shows experience, but could be sharper with explanation
haha Poisson