Massive diversification serves as a crucial tool for Outlier Hunters, not only to provide correlation benefits in chaotic regimes but also to increase the chances of capturing rare market events. It is the frequency of these Outliers in the...
A single correlation coefficient is a summary statistic. Like all summary statistics, it compresses a complex, time-varying relationship into a single number, and in doing so it discards the information that matters most for understanding how that relationship actually...
The dominant framework in traditional economics rests on an assumption so embedded it is rarely examined: that complex systems, left to their own devices, tend toward equilibrium. Disruptions are absorbed, imbalances self-correct, and efficiency drives the system toward a...
Portfolio risk management contains a conservation law that most discussions of diversification fail to acknowledge: risk cannot be eliminated from a portfolio. It can only be transferred within it. The only mechanism for actually releasing risk from a portfolio...
Introduction: A New Era in Trend-Following Strategies In the paper “Optimal Trend Following Rules in Two-State Regime Switching Models” by Valeriy Zakamulin and Javier Giner, the researchers propose that rigorous mathematical models and machine learning algorithms offer robust alternatives to...
Traditional economics approaches market prediction through a causal chain: identify the fundamental drivers, model their relationships, and project forward. Interest rates, corporate earnings, macroeconomic indicators, and historical price patterns serve as the inputs, and the model produces a forecast...
The assumption that larger is better is deeply embedded in how the financial industry evaluates fund managers. Assets under management functions as a proxy for credibility, institutional trust, and implied performance. The largest managers attract the most capital, which reinforces...
The SPIVA report, which measures the performance of actively managed funds against their respective benchmarks globally, produces a finding that is both consistent and sobering: between 75% and 90% of actively managed funds underperform their benchmarks over extended periods. This...
Cocoa’s recent performance produced one of the more remarkable sustained trends in the commodity markets in recent memory. It also produced one of the more instructive debates about risk in trend following: whether a Classic Trend Follower’s concentrated exposure...
The conventional toolkit for measuring investment risk was built on a set of assumptions that trend-following strategies violate structurally. The Sharpe Ratio, Standard Deviation, and Sortino Ratio have served as the dominant framework for evaluating geometric return outcomes across the...
