4 ms·

As someone with 10+ years of exp in the industry, I had no clue what this was actually doing after reading the github page. Had to dive through the examples and

As someone with 10+ years of exp in the industry, I had no clue what this was actually doing after reading the github page. Had to dive through the examples and videos. The alphas showcased seem weak: 1.5 max gross SR in sample, unresidualized, unconstrained and standalone. That would need to be blended with a hundred un correlated others to have a decent portfolio.

nuclearnice1 5y ago
What does unresidualized mean? What do the need to do to the software to “residualize” it? If that’s even the right expression.
- Galanwe 5y ago
  It means to remove a set of factors from the signal - or the returns of the signal, which would impact its performance or exposure, and are not meant to be captured by the signal. Imagine a "I have no preference" signal which gives a weight of 1/n to each asset of the portfolio - you have 100 stocks in your basket, you give 1% to each. If you would compute its performance, you would see that this portfolio would roughly make 10% average returns over 20 years. That seems good right? Well no it's not, because these 10% don't come from anything meaningful that your signal did. It came because you gained exposure to the market, and that exposure "carried" your signal performance. > What do the need to do to the software to “residualize” it? Well residualizing overall just means that you want to regress your signals on a set of factors that would carry its performance for no justified reason. In practical terms, you could start by doing a linear regression of your signal against such factors (say beta, country, sector) and only keeping the remaining residuals (alpha).
  - artemonster 5y ago
    Can you recommend books on the topic to learn about this kind of stuff?
    - harveynick 5y ago
      https://www.amazon.co.uk/Quantitative-Equity-Portfolio-Management-Applications-ebook/dp/B005H7L85C https://www.amazon.co.uk/Quantitative-Equity-Portfolio-Manag... Caveat: it’s not exactly “easy reading”, and you might want to have the “three blue one brown” YouTube channel on standby.
      - artemonster 5y ago
        Watched every video of them, I am okay with math. Thank you very much! Btw, since quant industry is full of secrets - is there any source on some actual money figures - how much firms make, what are the sums that are required to be shuffled, what are the frequencies of trades, profitability figures? Anything to get a slight glimpse into inner workings of this. Unfortunately googling turns out nothing or scams
        l337 5y ago
        Hedge funds are a very diverse group: from small shops managing tens of millions to the large funds managing tens of billions. The very good ones probably make around 20% a year (meaning that they earn around $40M per year per $1B that’s under management). HFT companies are a different story. The biggest ones make around $1B/year (e.g Virtu, Flow Traders which are public), with a few of them even bigger. There are many tier two companies making tens - few hundred million dollars per year. So none of them are really big (compared, to say, a big bank), but they do make a lot of money per employee, and the salaries reflect that.
        artemonster 5y ago
        Thank you!
        Galanwe 5y ago
        > is there any source on some actual money figures - actual money figures - how much firms make Yes there are a number of public sources, especially for UCITS funds that have some regulatory requirements to post publish their portfolio composition. But you probably won't be able to make much sense of these figures, as it needs to be interpreted relative to the orientation of the fund. See, a hedge fund is not selling "performance" per se, it's selling a reward for assuming a specific kind of risk on your behalf. Lots of people don't understand that nuance, and that's where you see all these messages like "haha my index fund outperformed hedge fund X". Say you're a super wealthy company, idk, let's take an insurance company for the sake of the example. You have 1 billion dollar lying around and you would like to earn some passive money on it. You can't just give that money to whatever hedge fund manager will give you the most performance, simply because you, as an investor, already have exposure to a bunch of factors. You cannot afford to have that money exposed to the same risks. - Suppose your insured clients are mostly from Europe, it would be a bad investment to place that money on something that is exposed to the European economy. It would mean that if some bad macroeconomic factor impacts the European economy, thus making Europeans companies at risk, your dear investment would fall at the same time. - You probably will need to be able to withdraw a part of that money at some point. Even if not, you will need to have some sort of balanced books to keep track of. Something along the lines of "the overall company reserve should cover 20% of the insured goods of clients". That means you cannot invest on whatever yields good performance, you also have to make sure the volatility of this investment won't put you at risk. There are thousands of considerations like that, each client will have a different set. This leads to a bunch of different "orientations" of funds. Each client will typically have some kind of preferred allocation that he will balance between multiple funds accordingly. Some examples: - CTAs (trend followers) will provide good performance, at the expense of a strong market exposure and volatility. - Market neutrals will provide pure alpha (no market exposure) but with lower volatility and returns. - Arbitragers will provide very good returns, very low volatility, but with very small capacity. - Macro funds will provide returns uncorrelated to the market, but suffer very low vol in certain circumstances. There is no point in comparing the returns of different orientations of funds. Even comparing the returns of same kind of funds is not really relevant, to have a full picture you would need to k ow exactly what this kind of fund is supposed to deliver in terms of volatility, exposure, returns, etc. > what are the sums that are required to be shuffled Usually this is an output of your strategy, not something you decide a priori. Quantitative funds win "on average", so you want to trade as much as you can for the law of large numbers to kick in, until the trading costs catches up. > what are the frequencies of trades That completely depends on the kind of fund, and the regulatory enveloppe with which the fund is sold. Typically that will go from a few microseconds for the best arbitragers to weekly/monthly rebalancing for large fundental funds.
- caffeine 5y ago
  It comes from the “residual” of a linear regression. So you take some obvious variable like the market basket of stocks, do a regression, and then do your machine learning on the residuals. The reason is that you don’t get “credit” for doing whatever the market did, you only get credit for doing even better.
igorkraw 5y ago
What's the best way for someone doing and ML and optimisation PhD to get into quant research/Trading? I've been playing with paper trading, trying to use creative data sources to find alpha and algotrading micro amounts of Cryptos for a while now and am seriously considering doing this for my post PhD life if I can't find a nice tenure track (a complication is that I do not want to leave Switzerland until I have citizenship here, so any advice or introductions would be very appreciated!)
- melony 5y ago
  Get an internship at a reputable prop shop or hedge fund (that specialize in quant finance). There are plenty in Switzerland.
  - bravura 5y ago
    Aren't they going to impose a strong non-compete agreement on you, so that once you've actually learned something you are handcuffed to them?
    - auntienomen 5y ago
      You can't really impose strong non competes on interns. You don't show them the good stuff either. Just enough to get/give an impression for later recruiting.
    - Galanwe 5y ago
      As mentioned in comments, it's pretty rare to give a strong non compete to interns. But interns aside, the whole industry is built around these competes, so mechanism are in place to circumvent them. Some HF will happily buyback the non compete, some will offer a welcome bonus to compensate, some will be ready to wait, some will make an offside deal with the departing company, etc.
  - igorkraw 5y ago
    Do you have a list/advice to find them? I only found a few with offices in Switzerland, and not being in the industry I don't fully trust my judgement of what is "reputable"
torbTurret 5y ago
Quants: So much fancy vocabulary just to consistently underperform your favorite mutual index fund :)
- Galanwe 5y ago
  Do you really believe the world is that simple? It poses you no problem to live in a world where your outsider opinion on a topic you probably just read about on the internet, is right versus a whole industry of very smart people managing hundreds of billions? At no point do you wonder that if thousands of smart, successful people and companies do something, then maybe that something is not as absurd as some internet blog posts may suggest?
  - torbTurret 5y ago
    I have done research in financial modeling and indeed have a family-member that manages his own successful hedge fund, so the comment was somewhat tongue-in-cheek. I do consider myself an outsider, though, as I’ve been out of the field for sometime. Still, if you’ve worked in hedge funds you’ll know two things: connections and luck account for almost everything. What remains are mostly linear models that almost never outperform your basic mutual index funds. Those very smart people moving billions do get things very wrong, though often at an imbalanced risk to themselves (an imbalance in their favor, mind you), so I don’t put much stock in such sweeping appraisals.

nuclearnice1 5y ago

What does unresidualized mean? What do the need to do to the software to “residualize” it? If that’s even the right expression.

Galanwe 5y ago
It means to remove a set of factors from the signal - or the returns of the signal, which would impact its performance or exposure, and are not meant to be captured by the signal. Imagine a "I have no preference" signal which gives a weight of 1/n to each asset of the portfolio - you have 100 stocks in your basket, you give 1% to each. If you would compute its performance, you would see that this portfolio would roughly make 10% average returns over 20 years. That seems good right? Well no it's not, because these 10% don't come from anything meaningful that your signal did. It came because you gained exposure to the market, and that exposure "carried" your signal performance. > What do the need to do to the software to “residualize” it? Well residualizing overall just means that you want to regress your signals on a set of factors that would carry its performance for no justified reason. In practical terms, you could start by doing a linear regression of your signal against such factors (say beta, country, sector) and only keeping the remaining residuals (alpha).
- artemonster 5y ago
  Can you recommend books on the topic to learn about this kind of stuff?
  - harveynick 5y ago
    https://www.amazon.co.uk/Quantitative-Equity-Portfolio-Management-Applications-ebook/dp/B005H7L85C https://www.amazon.co.uk/Quantitative-Equity-Portfolio-Manag... Caveat: it’s not exactly “easy reading”, and you might want to have the “three blue one brown” YouTube channel on standby.
    - artemonster 5y ago
      Watched every video of them, I am okay with math. Thank you very much! Btw, since quant industry is full of secrets - is there any source on some actual money figures - how much firms make, what are the sums that are required to be shuffled, what are the frequencies of trades, profitability figures? Anything to get a slight glimpse into inner workings of this. Unfortunately googling turns out nothing or scams
      - l337 5y ago
        Hedge funds are a very diverse group: from small shops managing tens of millions to the large funds managing tens of billions. The very good ones probably make around 20% a year (meaning that they earn around $40M per year per $1B that’s under management). HFT companies are a different story. The biggest ones make around $1B/year (e.g Virtu, Flow Traders which are public), with a few of them even bigger. There are many tier two companies making tens - few hundred million dollars per year. So none of them are really big (compared, to say, a big bank), but they do make a lot of money per employee, and the salaries reflect that.
        artemonster 5y ago
        Thank you!
      - Galanwe 5y ago
        > is there any source on some actual money figures - actual money figures - how much firms make Yes there are a number of public sources, especially for UCITS funds that have some regulatory requirements to post publish their portfolio composition. But you probably won't be able to make much sense of these figures, as it needs to be interpreted relative to the orientation of the fund. See, a hedge fund is not selling "performance" per se, it's selling a reward for assuming a specific kind of risk on your behalf. Lots of people don't understand that nuance, and that's where you see all these messages like "haha my index fund outperformed hedge fund X". Say you're a super wealthy company, idk, let's take an insurance company for the sake of the example. You have 1 billion dollar lying around and you would like to earn some passive money on it. You can't just give that money to whatever hedge fund manager will give you the most performance, simply because you, as an investor, already have exposure to a bunch of factors. You cannot afford to have that money exposed to the same risks. - Suppose your insured clients are mostly from Europe, it would be a bad investment to place that money on something that is exposed to the European economy. It would mean that if some bad macroeconomic factor impacts the European economy, thus making Europeans companies at risk, your dear investment would fall at the same time. - You probably will need to be able to withdraw a part of that money at some point. Even if not, you will need to have some sort of balanced books to keep track of. Something along the lines of "the overall company reserve should cover 20% of the insured goods of clients". That means you cannot invest on whatever yields good performance, you also have to make sure the volatility of this investment won't put you at risk. There are thousands of considerations like that, each client will have a different set. This leads to a bunch of different "orientations" of funds. Each client will typically have some kind of preferred allocation that he will balance between multiple funds accordingly. Some examples: - CTAs (trend followers) will provide good performance, at the expense of a strong market exposure and volatility. - Market neutrals will provide pure alpha (no market exposure) but with lower volatility and returns. - Arbitragers will provide very good returns, very low volatility, but with very small capacity. - Macro funds will provide returns uncorrelated to the market, but suffer very low vol in certain circumstances. There is no point in comparing the returns of different orientations of funds. Even comparing the returns of same kind of funds is not really relevant, to have a full picture you would need to k ow exactly what this kind of fund is supposed to deliver in terms of volatility, exposure, returns, etc. > what are the sums that are required to be shuffled Usually this is an output of your strategy, not something you decide a priori. Quantitative funds win "on average", so you want to trade as much as you can for the law of large numbers to kick in, until the trading costs catches up. > what are the frequencies of trades That completely depends on the kind of fund, and the regulatory enveloppe with which the fund is sold. Typically that will go from a few microseconds for the best arbitragers to weekly/monthly rebalancing for large fundental funds.
caffeine 5y ago
It comes from the “residual” of a linear regression. So you take some obvious variable like the market basket of stocks, do a regression, and then do your machine learning on the residuals. The reason is that you don’t get “credit” for doing whatever the market did, you only get credit for doing even better.

igorkraw 5y ago

What's the best way for someone doing and ML and optimisation PhD to get into quant research/Trading? I've been playing with paper trading, trying to use creative data sources to find alpha and algotrading micro amounts of Cryptos for a while now and am seriously considering doing this for my post PhD life if I can't find a nice tenure track (a complication is that I do not want to leave Switzerland until I have citizenship here, so any advice or introductions would be very appreciated!)

melony 5y ago
Get an internship at a reputable prop shop or hedge fund (that specialize in quant finance). There are plenty in Switzerland.
- bravura 5y ago
  Aren't they going to impose a strong non-compete agreement on you, so that once you've actually learned something you are handcuffed to them?
  - auntienomen 5y ago
    You can't really impose strong non competes on interns. You don't show them the good stuff either. Just enough to get/give an impression for later recruiting.
  - Galanwe 5y ago
    As mentioned in comments, it's pretty rare to give a strong non compete to interns. But interns aside, the whole industry is built around these competes, so mechanism are in place to circumvent them. Some HF will happily buyback the non compete, some will offer a welcome bonus to compensate, some will be ready to wait, some will make an offside deal with the departing company, etc.
- igorkraw 5y ago
  Do you have a list/advice to find them? I only found a few with offices in Switzerland, and not being in the industry I don't fully trust my judgement of what is "reputable"

torbTurret 5y ago

Quants: So much fancy vocabulary just to consistently underperform your favorite mutual index fund :)

Galanwe 5y ago
Do you really believe the world is that simple? It poses you no problem to live in a world where your outsider opinion on a topic you probably just read about on the internet, is right versus a whole industry of very smart people managing hundreds of billions? At no point do you wonder that if thousands of smart, successful people and companies do something, then maybe that something is not as absurd as some internet blog posts may suggest?
- torbTurret 5y ago
  I have done research in financial modeling and indeed have a family-member that manages his own successful hedge fund, so the comment was somewhat tongue-in-cheek. I do consider myself an outsider, though, as I’ve been out of the field for sometime. Still, if you’ve worked in hedge funds you’ll know two things: connections and luck account for almost everything. What remains are mostly linear models that almost never outperform your basic mutual index funds. Those very smart people moving billions do get things very wrong, though often at an imbalanced risk to themselves (an imbalance in their favor, mind you), so I don’t put much stock in such sweeping appraisals.