Statistical Arbitrage How to diversify to generate Alpha

Statistical Arbitrage
How to diversify to generate Alpha
Table of Contents
I.
Executive summary
II. Investment Strategies
III. Advantages of our system
IV. Performance 2013
V. Performance since inception
VI. How our trading system works
VII. BNP: Beta Neutral Portfolio
VIII. GYC: Introducing Global Yield Curves
IX. GYC: Yield Curve Strategies
X. GYC: Pairs trading long term rates
XI. GYC: Risk Management
XII. GYC: Performance
XIII. Why diversification?
XIV. Alpha generator
XV. Portfolio Revisions
XVI. Questions and answers
XVII.Investor Contacts
XVIII.Disclaimer
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2
Executive Summary
3
Investment Strategies
It has been proven that long only and static asset allocation methodologies are incapable of enduring the peak-to-through decline
of the markets.
4
Advantages of our system
5
Performance - 2013
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
S & P 500 T otal R eturn
Hang S eng
TR Z
J P M As ian B ond Index
Key statistics
Return (Jan’ 13 – Apr’13)
Return (Annualised)
Std Dev (Annualised)
Sharpe Ratio
Sortino Ratio
Alpha (Annualised)
Beta (vs S&P500)
18.28%
55.91%
17.01%
3.29
8.39
57.27%
-4.49%
Max Drawdown
VaR (Montecarlo @ 99.9%)
-1.71%
-5.50%
Correlations
TRZ vs S&P500
TRZ vs Hang Seng
TRZ vs JPM Asian Bond Index
-10.60%
7.60%
-2.95%
6
Performance – Since inception
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
S & P 500 T otal R eturn
Hang S eng
TR Z
J P M As ian B ond Index
Key statistics
Return (Inception – Apr’13)
Return (Annualised)
Std Dev (Annualised)
Sharpe Ratio
Sortino Ratio
Alpha (Annualised)
Beta (vs S&P500)
35.13%
52.13%
15.67%
3.33
4.52
54.36%
-10.06%
Max Drawdown
VaR (Montecarlo @ 99.9%)
-2.54%
-6.40%
Correlations
TRZ vs S&P500
TRZ vs Hang Seng
TRZ vs JPM Asian Bond Index
-19.76%
-0.19%
-11.11%
7
How our trading system works
8
How our trading system works
9
BNP: Beta Neutral Portfolio
The BNP strategy assumptions are fairly easy to assess. From a mathematical point of view we apply part of the
propositions theorized by Frazzini and Pedersen in their last paper. The remaining part is a proprietary model.
10
GYC: Introducing Global Yield Curves
11
GYC: Yield Curve strategies
Parallel shift
3.0%
2.5%
Yield To Maturity
GYC captures most yield curve movements
 Parallel shifts, steepening/flattening, butterfly trades
 Returns on same assets but low correlation
 Positive carry and duration neutrality
 Directional in the level, slope and convexity
2.0%
1.5%
T
T+1
1.0%
0.5%
0.0%
2Y
5Y
10Y
Maturity
30Y
Source: Diarch Research
Flattening
Convexity Increase
3.0%
2.5%
2.5%
1.5%
Yield To Maturity
Yield To Maturity
2.0%
T+1
T
1.0%
0.5%
T+1
1.5%
T
1.0%
0.5%
0.0%
0.0%
2Y
Source: Diarch Research
12
2.0%
5Y
10Y
Maturity
30Y
2Y
Source: Diarch Research
5Y
10Y
Maturity
30Y
GYC: Pairs Trading long term rates
13
GYC: Risk Management
14
Performance
Since we started diversifying among strategies our trading system has consistently produced average returns around
with very low draw downs. To achieve these returns we use a leverage of around 5 times the AUM which guarantees a
very good trade-off between risk and returns. If the investor can afford a higher risk appetite this can be increased.
15
Why diversification?
16
Alpha Generator
83% Positive Alpha
1.200%
1.000%
17% Negative Alpha
0.800%
0.600%
0.400%
0.200%
0.000%
-0.200%
0
50
100
150
200
-0.400%
-0.600%
17
Portfolio Revisions
18
Questions & Answers
19
Contacts
Jos Van Trier
Partner and founder
+31 (0) 888 723 900
jos@trzfunds.com
Giancarlo Cobino
Fund Manager
+ 31 (0) 208 083 863
giancarlo@trzfunds.com
gcobino3@bloomberg.net
www.trzfunds.com
20
Disclaimer
21