“Crisis Alpha”
| Apr 26th, 2011 | Filed under: Performance, Analytics & Metrics, Today's Post | By: AAA Staff |
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Beta comes in different shapes and sizes: plain vanilla and exotic, bull beta and bear beta. Alpha is no different and positive crisis alpha avoids the Achilles’ heel of other varieties: it doesn’t disappear when you most need it.
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Good article.
However, it finishes on a slightly uneducated note with regards to the comparison with Look Back Straddles. Such a strategy would incur an immediate cost (option premium) as well as involving the trading of such instruments on an OTC basis which leaves it open to liquidity issues especially in times of crisis.
Time would have been better spent analysing the different factors at play within the CTA universe (High Frequency, Break Out, Short Term Trend, Long Term Trend etc) and highlighting that many CTA’s are a mix of all of those styles. By mixing these styles many CTA’s actually decrease their contribution to Crisis Alpha because as we all know it’s only by being positioned in the direction of the Long Term Trend that true Equity Risk Diversification can be achieved.
[...] flying algos on Amazon. Wow, fascinating “CTAs actually need crises to generate their returns. Strip out crisis periods and you can [...]