We think capital markets, though man made, is a fairly accurate representation of large scale, open, dynamic systems found in nature. Systems like galactic clusters, where gravitational and other primal forces of nature work to shape unpredictable outcomes over eons. Large ecosystems and species evolution, shaping and reshaping outcomes, influencing each other.Note that none of these systems are deterministic and all are probabilistic. Probabilistic outcomes are the only way because all forces are always acting on each other; kind of like everything everywhere all at once.We think trading using quantitative methods and producing consistent profits is akin engaging in a titanic struggle against forces far beyond the strength of a mere mortal.
A trifecta of skills is needed to work in quantitative investing. We think these are interlinked and all are innate to an individual. These can be developed but cannot be faked.
Curiosity, to continuous acquire diverse knowledge and ability to connect disparate dots is a critical aspect of quant investing. Usually, such knowledge will develop and hone intuition which will indirectly guide you towards asking right questions.
Imagine a wave (a Sine wave, for mathematically inclined) like price movement. A child will be able to buy low and sell high and vice versa. Unfortunately, in competitive open markets, there is no such price action. So, we make our own wave.
A trifecta of skills is needed to work in quantitative investing. We think these are interlinked and all are innate to an individual. These can be developed but cannot be faked.
Curiosity, to continuous acquire diverse knowledge and ability to connect disparate dots is a critical aspect of quant investing. Usually, such knowledge will develop and hone intuition which will indirectly guide you towards asking right questions.
Our unique framework – “Statistically Stable Synthetic Securities®” helps us do things that no other fund can do :
1. Predictability :
We can predict our return with >90% confidence level. We can do this because our research has shown that number of anomalies (relative mispricing) and degree of those anomalies / mis-pricings are constant over time. This is a well-known feature of large-scale systems often stated in terms of law of large numbers. Our governing equation can be stated as follows:
2. Consistency :
Our model allows us to be consistent in larger timeframes – usually in a yearly level. We focus on trading bigger anomalies that tends to exist over days to months (and no second / sub-second timeframes which are the domain of HFTs firms). We expect our model to perform above market over longer timeframes. This suits us well – we like to play the long game.
3. Longevity :
We trade an aspect of the markets that cannot be arbitraged away no matter how much cash is deployed in it. At its deepest level, our profits come from a foundational law of nature called second law of thermodynamics or the law of entropy. Entropy is defined as a measure of disorder (or Anomalies) in the system, and the law of entropy states that entropy only increases. Therefore, our approach to investment will endure decades – certainly investment horizons of most investors.
Prospective applicants:
Please revert with responses to the following questions to a@anarcap.co
1. Why does VIX mean revert?
2. Are there non-linear relationships in the capital markets? If so, why do they exist?
3. Demonstrate a quant model that you built – explain its intuition and source of alpha.
Note on quantitative strategies.
Search for profit is same thing as search for truth. Consistent profit generating strategy will require a consistent process and inputs.
Null hypothesis: A given input is not predictive.
To establish this,
1. Plot the input parameter against the returns in a scatter plot. You should see an even distribution in dots in all four quadrants.
2. Plot the returns on histogram. You should see a normal distribution.
This means that null hypothesis is not rejected. In other words, strategy will not make any money.
Searching for profits :
Next step should be to add filters to see if the histogram skews to right. There is no science to this process. Intuition and perseverance take over from here.
One can also add additional parameters to see if it aids signal generation.
Our Amazing Team is a group of dedicated professionals committed to delivering innovative solutions. We collaborate seamlessly to achieve excellence and drive success for our clients.