Category: TRADING

Using the VIX for Position Sizing

Position sizing is a critical aspect of trading that directly influences the risk and potential reward of each trade. It involves determining the appropriate amount of capital to allocate to a specific trade based on factors such as account size, risk tolerance, and market conditions. Effective position sizing aims to …

Evaluating Trading Strategies Using Economic Criteria

In the realm of trading strategy development, assessing strategy effectiveness can be approached through two distinct avenues. One approach involves evaluating the efficacy of a predictive method by employing statistical measures to gauge its accuracy and predictive power. Alternatively, effectiveness can be gauged by directly evaluating the strategy’s profit and …

What Caused the Increase in Correlation?

Correlation in the stock market refers to the statistical relationship between the price movements of different stocks or assets. It measures the degree to which these price changes tend to occur together or in opposite directions over a specific period. Positive correlation implies that stocks move in the same direction, …

Filtering Stocks Based on Volatilities

Stock volatility refers to the degree of variation in a stock’s price over time. It is a measure of the magnitude of price fluctuations, reflecting the market’s uncertainty and the potential for rapid changes in an asset’s value. High stock volatility signifies greater price swings, indicating a higher level of …

Use of the Real-World Measure in Portfolio Management

In the realm of finance, the risk-neutral measure takes precedence in pricing financial derivatives. However, the real-world measure remains significantly valuable and indispensable across various domains. It plays a pivotal role in risk management and asset/liability applications, facilitating comprehensive evaluation and mitigation of risks. Real-world measures are useful for simulation-based …

Factor Investing With Timing

Factor investing, also known as smart beta or systematic factor investing, is an investment strategy that involves selecting and weighting securities based on specific characteristics or factors believed to drive their performance. These factors can include value, momentum, size, quality, and low volatility, among others. The idea behind factor investing …

Dynamics of the Volatility of Volatility Index, VVIX

The VVIX, also known as the Volatility of Volatility Index, is a measure that tracks the expected volatility of the CBOE Volatility Index (VIX). As the VIX reflects market participants’ expectations for future volatility in the S&P 500 index, the VVIX provides insights into the market’s perception of volatility uncertainty …

Using Hurst Exponent on the Volatility of Volatility Indices

A market regime refers to a distinct phase or state in financial markets characterized by certain prevailing conditions and dynamics. It describes the overall behavior and patterns observed in asset prices, market volatility, and trading activity. Two common market regimes are mean-reverting and trending regimes. In a mean-reverting regime, prices …

Is Diversification Beneficial in Pairs Trading?

Diversification offers several key benefits in trading and investment. Firstly, it helps to mitigate risk by spreading investments across different assets or asset classes. By diversifying, investors can reduce their exposure to any single investment and minimize the impact of potential losses. Secondly, diversification can enhance portfolio stability and smooth …

Using ChatGPT to Decipher Fedspeak

ChatGPT is a state-of-the-art language model developed by OpenAI. It uses deep learning techniques to generate human-like text responses based on given prompts. With its vast knowledge base, ChatGPT can engage in interactive conversations, answer questions, and provide valuable insights across a wide range of topics. In a previous blog …