The birth of a strategy pt. 2 – extending VXX history and other data concerns

This is the third part in a series describing how to approach the creation of a new trading strategy, including everything from idea generation, universe selection, data generation, proper in/out of sample testing, necessary considerations before live trading and the eventual big decision: do I want to trade that? The first posts can be found …

The birth of a strategy pt. 1 – what is this volatility and where can I buy it?

Continuing from the last post and the overwhelming response (thanks bitfool), the "Birth of a Strategy" series will focus on developing a strategy based on volatility related products (ETFs and ETNS). As it is not as of a hot topic like in 2014/early 2015 anymore, in this first part of the series we will take a …

The birth of a strategy – a common effort

Let's start an experiment! This post will be the first in a series on going through the process of creating a trading strategy. It will not only detail the steps that I myself curently follow when I am building a strategy, what I'm hoping for is that others contribute to the process by adding their …

A single value to measure equity market correlation

There exists a vast amount of studies that show an increase in correlation between global equity indices during bear markets and propose ways to measure/forecast this correlation (see for example Campbell, Koedjik and Kofman or Capiello, Engle and Sheppard, and many, many more). These studies differ greatly in their methodologies and complexities but they more or less all show …

The time has come: setting up a DB with MySQL and R

The recent decision by Yahoo to screw with their API for financial data (and in the process disabling all packages/functions in various programing languages obtaining EOD (end-of-day) data, at least temporarily) shows us two important things: Nothing is free and reliable forever It's a good idea to have a database set up So for everyone …

Risk Premia Market Timing?

Here it goes, finally a strategy backtest (sort of) on this blog (what an intro). In their 1973 paper "Risk, Return and Equilibrium: Empirical Tests", Fama and MacBeth introduce a method for estimating betas and risk premia for any risk factors that determine asset prices. Under the assumption that the only common risk factor that …

Food for thought: Risk Backtesting?

As you are reading this blog you are definitely familiar with the concept of backtesting trading strategies, and probably have done so a significant amount of times. But do you also backtest your risk metrics? They are as important of a building block of your portfolios overall performance as the trading strategies themselves. So if …

Constrained by capital or why rounding down is bad for you

Imagine this, you have backtested a strategy adhering to all the "general rules": you did proper in/out of sample testing, you have stable parameters (if the strategy has any), you didn't overfit, you account for transaction costs and slippage, everything seems good and you are ready to deploy your strategy and earn you some money. …