Algorithm Performance: 08/29/2022
Performance Rankings (From Friday)
Sector Neutral +0.22%
Experimental Sector Neutral -0.06%
Market Neutral -0.35%
Experimental Market Neutral -0.64%
Long Term Portfolio -2.66%
Base Algorithm -2.78%
The Market -3.36%
Performance Rankings (From Today)
Long Term Portfolio: +0.35%
Experimental Market Neutral: +0.27%
Base Algorithm: +0.12%
The Market: +0.11%
Market Neutral: +0.01%
Experimental Sector Neutral: -0.03%
Sector Neutral: -0.1%
What Happened And Why?
To start: we won. Allen and I didn’t allocate into the pilot on Friday, because we were too busy to actively trade. But we agreed ahead of time that we would have used Experimental Sector Neutral (and did, for much of last week).
On Friday, we would have lost less than 1/50th of what the market lost. If you’re not a Platinum member and used Standard Sector Neutral, you made money and beat the market by more than 3.5%.
On Friday, we won because of our hedging. If you went long on equities Friday and didn’t hedge, you almost definitely lost money. We 100% would have, because nothing in our long term portfolio was even in the black. To be clear, that’s not the fault of the portfolio - the market was just brutal on every front.
The intraday sector values from Friday are above. Everything was down. If you didn’t have any hedging, or any short positions, there was really nowhere to hide.
There was one thing on Friday that even we couldn’t bypass: technical signals. And this has persisted throughout trading today. On both days, our base algorithm slightly underperformed our long term portfolio - and I won’t be surprised if this trend continues for a few days.
It’s too early to say for sure, but here’s my theory. On Friday, Powell’s warning about impending interest rate hikes drove the markets down. Because this response was fundamentals-oriented, I think it threw a lot of technical indicators out of whack. The modeling portion of our algorithms are solely technicals-oriented, so they won’t perform optimally until most technical indicators are back in order.
If I’m right, it’s difficult to say how long this will take. I’d like to see our base algorithm outperform our long term portfolio for at least 2 trading days in a row. Until then, I’ll personally be hesitant to allocate heavily.
What We’re Working On
The HK Quant Team is still looking into how we rate the power of technical signals. The results are pretty technical, and too proprietary to share publicly. But I’d say there’s a 90%+ chance that we end up updating this. In that case, I would expect all of our algorithms to improve.
Tomorrow’s Outlook
The full algorithm reports will be published tomorrow morning, once Allen has had a chance to vet its recommendations. In the meantime, here are our tentative exposures for the trading day tomorrow:
That’s all for tonight. If you’re still here after Friday, congratulations. Let’s show the market who it’s up against. Good luck trading everybody.
-Asher
