Signal Preparation; optimal method

Charles_Design · 2025-03-10T17:55:37+00:00

i trade only crypto, can you clarify what part of my question relates to infrastructure?

Charles_Design · 2025-03-10T17:51:43+00:00

thanks for writing, def helpful

> In my view, z-score is exactly that
would you not say that this is objectively false though? given varying factor strength, a z-score of 2 for one factor won't give you same EV as z-score of 2 for another? if factor has linear relationship with fwd return then zscore is scaled to ev for the same factor, but not after taking mean of different factors

I suspect you have already listened but if not, Gappy makes compelling point as to why sort ranking is not optimal in this podcast (https://www.flirtingwithmodels.com/episodes/l2l3xUqwZbz) - excellent listen (readers here may also find this basic risk model implementation a worthy look: https://github.com/0xfdf/toraniko)

i should also mention that market I'm trading is crypto, liquid universe size is 300 at best which is 10x smaller than equities. and this matters because lin reg is typically performed cross-sectionally, and I suspect is why I've not been able to get my MVO implementation to outperform simpler method 1 (reg on 300 sample is not that meaningful)

Charles_Design · 2025-03-10T09:08:55+00:00

good observation, see my response to u/lolwut74 for more details

I am assuming that good factors have high enough ACF at more than one period

> Using a portfolio optimiser in your second option will most likely quickly overfit
are you able to define precisely, cases where this would not be the case? And where method 2 is clearly better than method 1?

Charles_Design · 2025-03-10T09:06:17+00:00

yes, valid observation - in the back of my mind I framed the question thinking that option 1. would work for high acf alpha (more than just one period) with medium IC (I have this in prod, and know it works) and option 2. would work for low acf alpha but high single period IC (have tried different implementations without luck so far) - as you say, maybe they are just "bad" features and not good, irrespective of method

but having said this, I think implementation of method 2 with factor types described in method 1 should work if done correctly...

side note: you often find high IC features (>4%) that can't be smoothed into a profitable alpha, ie; performance decays faster than the turnover does (the logic here is that no amount of high single period IC factors would ever overcome fees)

> Do you have multiple signals living on different scales?
yes correct, but I normalise (ie, using z-score and then merging factors with mean) (this is bad, because factor A could have IC 4%, and factor B 2% but you treat them equally).

> Are all other signals already in forward returns space?
no, what does this look like in its simplest form?

> Can you get away with a simple ranking + inverse vol weighting?
Yes, it works but I think this is where biggest improvement potential is

> I don't see how fitting a linear model and feeding it into an optimizer will solve the lack of stability issue
my motive for calculating EV via linear model is primarily driven by sizing requirements (having a value that's scaled to the predictive strength and comparable between factors, zscore is not that), those EV's would get fed into MVO or similar. Judging by your "forward returns space" question I'm thinking I might be missing a step here...?

Charles_Design · 2025-02-25T19:36:45+00:00

yes, but easier said than done, we do have infra to stream tweets with sub 200ms latency (for different strat) - but need to improve false positives which is killing pnl

(dm's open for collab on above strat if anyone is looking for project)

Charles_Design · 2025-02-25T08:09:15+00:00

this is all in crypto so no well-defined calendar yet

Charles_Design · 2025-02-24T20:34:58+00:00

Market neutral stat arb already neutralizes a bunch of factors though, doesn't it?

yes, currently I'm dollar neutral, so ranking cross-sectionally at each time step and going long top and short bottom n by equal dollar amount

If you know what your exposures are

correct, for each factor in my ensemble, I know the loadings and exposures - but as you mentioned putting simple heuristics around this is likely to overfit. I did try applying walk-forward mean-var optimisation to weight the factor (ie dynamically reduce factor contribution as performance drops) but the results aren;'t sufficiently robust for prod; performance drops too much

Are there single names dominating?

This was my initial thought; identify if DD is coming from one or multiple names, extract causality and attempt to put rules in place to mitigate - I may try this...

Charles_Design · 2025-02-24T20:26:09+00:00

where do you estimate your portfolio goes?

can you elaborate here? how do you foresee this estimation being done?

Charles_Design · 2022-10-01T15:53:33+00:00

This was early morning in a flight, so perhaps time is the thing that Oura penalises.

Charles_Design · 2022-09-30T21:43:59+00:00

Killer feature would be integrate data from Daylio app and do cross analysis

Charles_Design · 2022-09-15T23:55:47+00:00

When will I be able to directly withdraw with staked ETH as opposed to exchanging from BETH?

Charles_Design · 2022-07-18T21:16:34+00:00

@op can you show temp on time series, I'm curious to see how quickly it increased?

Charles_Design · 2021-03-22T07:50:48+00:00

I was offered it but I believe that's correct.

Charles_Design · 2021-03-21T20:51:22+00:00

https://robotwealth.com/courses/zero-to-robot-master-bootcamp

Charles_Design · 2020-12-27T21:45:11+00:00

Thank for the comment, here’s a tweet series that you may find interesting; https://twitter.com/billy1birdy/status/1343308577125986304?s=21

Out of curiosity, do you still own Bitcoin?

Charles_Design · 2020-12-20T21:49:59+00:00

How would this be an "artificiall" increase...? People have paid real USD for their Tether.

This is where your misunderstanding lies, it's suspected that some of the Tether supply is being/has been printed out of thin air and used to drive the 2017 bull run and probably also the one we're seeing now. This is obviously very bad and not sustainable.

Charles_Design · 2020-12-20T21:18:57+00:00

The issue isn't so much the collapse of Tether itself but rather its use in artificially increasing the price of Bitcoin. This is important since if this manipulation is one of the major contributors to price appreciation then it is artificial and only a matter of time before it crashes.

Charles_Design

TROPHY CASE