An investment fund developed a long short index trading strategy to generate additional alpha and reduce the draw down on overall fund performance. However, the actual realized results were significantly different from the back tested results leading to a sub-optimal performance of the fund.
Assessed the client’s quant strategy using in-house advanced quant platform and recorded following parameters:
Ran the Strategy on JMI’s proprietary quant platform, across multiple sections of in-sampled and out-sampled data and recorded strategy result dataset which showed varied performance across time frames.
On further statistical analysis across time periods, JMI identified that the back tested result dataset was influenced by high kurtosis (+9.5) and negative skew (-1.7), and this led to high deviation in actual and back tested performance of the long short strategy.
Optimized the long short strategy parameters by using multi-variate regression and statistical modelling.
Added new volatility-based indicator to the strategy which led to a significant improvement in overall strategy and actual results in line with the back tested results.