Thursday, June 6, 2024

Breaking down the quant environment into four groups


All quant strategies are not the same. AQR provides a simple four-part breakdown of the quant opportunity set. First, there is the classic stock selection approach which is likely driven by exploiting differences or excesses in factor exposures. Second, if the classic corporate arbitrage associated with capital structure such as mergers and convertible bonds as well as other capital events. The next two approaches are associated with macro trading. One is macro direction which can be driven by trend or macro information that will drive dislocations across asset classes or geography. The other is macro relative value which can include basis trading, carry trades, and country relative risk trades.  

An investor should diversify across these quant strategies. Since each is highly uncorrelated with the others, there is significant gains from holding a portfolio of quant strategies that focus on different opportunities. 

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