Is It Good to Be Bad? – The Quest for Understanding Sin vs. ESG Investing

2.November 2023

What are our expectations from the ESG theme on the portfolio management level? The question is whether ESG investing also offers some kind of “alternative alpha”, or outperformance against the traditional benchmarks. There are managers and academics who are enthusiastic and hope for the outperformance of the good ESG stocks. However, the academic research community is really split. Some academic papers show positive alpha for “Saints” (good ESG stocks); others show significantly positive alpha for “Sinners” (bad ESG stocks). So, how it’s in reality? Is it “Good to be Bad”? Or the other way around?

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Estimating Stocks-Bonds Correlation from Long-Term Data

29.October 2023

There are a few concepts in the world of finance that are taken for granted, and one of them is the free lunch of diversification. Investors like to mix stocks and bonds into a simple allocation portfolio and hope for better outcomes than investing in just one asset. But the favorable return-to-risk profile of those asset allocation strategies relies on the low correlation between those two asset classes, which, as we will see from today’s contribution, we can’t take for granted. We hope the recent study sheds more light on this topic.

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Which Alternative Risk Premia Strategies Works as Diversifiers?

24.October 2023

In the ever-evolving world of finance, the quest for stable returns and risk mitigation remains paramount. Traditional asset classes, such as stocks and bonds, have long been the cornerstone of investment portfolios, but their inherent volatilities and susceptibilities to market fluctuations necessitate a more diversified approach. Enter the domain of alternative risk premia (ARP) – strategies designed to capture returns from diverse sources of risk, often orthogonal to traditional market risks. Our exploration in this blog post delves deep into this subject, shedding light on which ARP strategies can truly serve as robust diversifiers in the complex financial tapestry.

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Hello ChatGPT, Can You Backtest Strategy for Me?

18.October 2023

You may remember our blog post from the end of March, where we tested the current state-of-the-art LLM chatbot. Time flies fast. More than six months have passed since our last article, and half a year in a fast-developing field like Artificial intelligence feels like ten times more. So, we are here to revisit our article and try some new hacks! Has the OpenAI chatbot made any significant improvement? Can ChatGPT be used as a backtesting engine? We retake our risk parity asset allocation and test the limits of current AI development again!

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What’s the Key Factor Behind the Variation in Anomaly Returns?

13.October 2023

In a game of poker, it is usually said that when you do not know who the patsy is, you’re the patsy. The world of finance is not different. It is good to know who your counterparties are and which investors/traders drive the return of anomalies you focus on. We discussed that a few months ago in a short blog article called “Which Investors Drive Factor Returns?“. Different sets of investors and their approaches drive different anomalies, and we have one more paper that helps uncover the motivation of investors and traders for trading and their impact on anomaly returns.

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Time Invariant Portfolio Protection

11.October 2023

In this article we are going to continue the discussion on portfolio insurance strategies. An exhaustive description of this methodology was already presented in the article Introduction to CPPI. This article will focus on an extension of the original model introduced by Estep and. Kritzman (1988), namely Time Invariant Portfolio Protection. Constant Proportion Portfolio Insurance (CPPI) and Time-Invariant Portfolio Protection (TIPP) are two of the most famous portfolio insurance strategies that play an important role in the realm of investment management and risk mitigation. These strategies are designed to address the fundamental challenge of balancing the pursuit of financial growth with the imperative of capital protection against market downturns. Ideally, the guaranteed protection is achieved at the lowest possible premium for the investors.

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