Algorithm Performance: 10/05/2022
Performance Rankings
The Market: +0.99%
Base Algorithm: +0.36%
Long Term Portfolio: +0.17%
Sector Neutral: -0.15%
Experimental Market Neutral: -0.3%
Experimental Sector Neutral: -0.3%
Market Neutral: -0.39%
What Happened And Why?
Market & sector hedging would have shown a return of -0.53% and -0.16%. That gives us 4 of our main 5 algorithms beating baselines today. I’d like to examine Experimental Sector Neutral. Of our hedgers, it performs best in backtests, but was the only one to underperform today.
ESN had 9 losers out of 15 tickers, whereas the whole portfolio was 29 red out of 50. If we’d chosen tickers randomly, we’d have a ratio at least that bad about 55.2% of the time. But we still underperformed the baseline for sector hedging, so it would be naive to call this nothing more than bad luck.
I picked out some of our bigger losers, and looked into why we chose them. As usual, I can’t reveal exactly which signals we used, but there are some commonalities. ESN was using a lot of mean reverting signals, seeing tickers on a downward trend that, historically, outperformed their sectors after descending for a few days. Unfortunately, there isn’t too much that this makes me want to change. Catching falling knives and riding slow descents are both known problems of mean-reversion strategies. But at the same time, we’ve had enough success with them in the past that it would be a bad idea to just remove the signals.
We could add a limiter of sorts to our mean-reverting signals, but that’s technically already a part of our system. The algos won’t apply mean reverting techniques to a ticker unless its responded well to them in the past.
I guess this is something we need to keep an eye on. If it really becomes a problem, implement more aggressive action.
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. Congrats to everyone who made money today.
-Asher
