Client
A New Yorker Hedge Fund.
OPPORTUNITY
The client approached SG Analytics to conduct a strategy definition and back-testing for a proprietary quantitative factor model.
SOLUTION
SG Analytics supported the client’s onshore team by adding experienced offshore resources that conducted the following steps:
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Leveraging historical data from January 2005 to December 2016 (backtest period), our team identified key factors based on monthly re-balances of stocks.
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The team ranked the stocks based on factor weights and returns to compare the returns of top decile stocks with the returns of bottom decile stocks.
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We then conducted an optimization and Monte-Carlo simulation to identify a combination of factors for which the top decile would consistently outperform the bottom decile and maintain a Sharpe ratio > 1 throughout the back-test period from 2005 to December 2016.
VALUE DELIVERED
1
SG Analytics' backtest demonstrated that the top decile outperformed the bottom decile with an average monthly return of 2.48% and an annualized Sharpe ratio of 1.13
2
A long-short fund using the two deciles with equal dollar values would have yielded average annualized returns of 36% and Sharpe ratios of 1.67 with all 12 years yielding positive returns.
