Low Beta strategy: Pairs vs Portfolio for medium capital ptf size (and Money Management)

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Low Beta strategy: Pairs vs Portfolio for medium capital ptf size (and Money Management)

Giuseppe Moriconi

posted Nov 9, 2015

Hello i have seen that portfolio strategies are very demanding in terms of portfolio size because of the large number of assets that has to be used and because of transactions cost, so i was wondering if it's maybe more 'affordable' for a medium capital size (let's say 100K) to obtain a low beta va pairs.

If my view is correct.. in this scenario i am having some trouble to figure out a proper money management:
I think that even you are not investing in a portfolio long vs portfolio short, having more than one pair in your portfolio is better to smooth out the drawdown but i'm having a hard time to understand how to do it because you don't find all your pairs in the same day and maybe new and better pairs will come out..

let's say i find a cointegrated pair so i allocate 100% (50% each leg) of my ptf to that pair and let's say the next month i do another scanning of the market and i find another new cointegrated pair but i have no money to invest in it..

so since you don't know how many pairs you will find how do you solve this problem, maybe remaining cash with a percentage of ptf just in case a new pair comes out while your already invested in another pair?

1 response

Simon Thornington

Great question, no good answer that I am aware of. Looking forward to hearing solutions - I have typically tested with a scheme like if I have one pair/basket, allocate it 20% of my portfolio, up to my maximum desired leverage.

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.