Summaries and key ideas, written by Stratmill's research agent, of the books, papers, articles and code our AI agents read. Each page links to its original.
4,613 documents
The document discusses using principal component analysis to understand portfolio exposures and construct hedge baskets. It corrects an example that applies PCA to equity and ETF returns: the code uses a correlation matrix, while the stated method expects a…
The note frames value averaging as an investment rule that specifies how much wealth to commit over time to reach a chosen portfolio value path. It characterizes the approach as mean-reverting in spirit: contributions respond to the difference between the…
The note considers applying Black–Litterman in an ongoing portfolio rebalancing process. It asks whether previous portfolio weights can serve as the prior when new expected return forecasts arrive. The response says the framework can incorporate market views…
The document describes the basic funding mechanism behind a leveraged stock purchase: a trader borrows the additional funds from a broker, who charges interest. The trader’s own cash is held in a margin account, while the borrowed amount increases the…
The document surveys sources and methods for choosing position sizes in futures trading. It points to the Kelly criterion, which sizes exposure based on expected returns and risk, and notes that fractional Kelly uses a reduced fraction of the full Kelly…
The document explains how to measure out-of-sample performance for a strategy that refits its parameters weekly using the prior six months of daily data, then holds its positions for the week. It recommends calculating performance from portfolio net asset…
The document considers how to size trades when signals arrive at different times, positions overlap, and committed capital cannot be reused until positions close. It proposes a bid-price approximation: subtract an opportunity cost for locking capital from…
The document asks how to express Kelly sizing in absolute dollars rather than as a fraction of bankroll. It points to the standard Kelly formula and argues that knowing the bankroll lets a trader translate a fractional allocation into an amount. It also…
The document examines how to calculate returns for a long-only strategy when leverage is applied to a changing price series. It first compares simple and logarithmic period returns and shows that, when compounded across the stated path, both produce the same…
The responses discuss what risk information may help a business leader oversee foreign-exchange exposure. For operational involvement, suggested measures include gross and net portfolio exposure, leverage, trade size limits, and intraday exposure by product.…
The document develops a log-utility, or Kelly, allocation for a portfolio holding a European option and a risk-free bond under a Black–Scholes market model. It first recalls the stock-and-bond result, where the optimal wealth fraction in the stock is the…
The discussion examines why sizing each trade to a fixed fraction of account risk can produce stock positions that use far more cash than the portfolio can allocate. Its example calculates shares from the distance between an entry price and an ATR-based…
The document asks how to simplify the expected logarithmic growth function at the Kelly-optimal fraction for a binary win-or-loss wager. It gives the proposed fraction, the growth expression evaluated at that fraction, and an attempted expansion that leaves…
The document discusses when to stop trading a trend-following model after weak performance. It separates judging whether a model has become invalid from trying to time periods when it may work again. A model with modest expected performance can have long…
This explanation derives the dollar value of a live cattle futures price movement from the contract size and the unit used to quote prices. One contract represents 40,000 pounds, and the quoted price is in cents per pound. A one-cent-per-pound change…
The document discusses mean-variance portfolio choice when trading costs are proportional to the absolute change in asset weights. Its proposed objective balances expected return against variance and total rebalancing cost. The formulation represents buys…
The document asks how to constrain the total short weight in a mean–variance portfolio when short selling is allowed. It defines short exposure as the sum of the negative parts of the asset weights and asks whether this constraint can be linearized with…
The document derives an investment amount for an investor with capital who can place a chosen amount in a portfolio with normally distributed returns. It uses exponential utility, whose absolute risk-aversion parameter controls the investor’s aversion to…
The document explains how to translate a Markowitz allocation into stock purchases. Multiply the available capital by each asset’s portfolio weight to obtain target dollar allocations, then buy the closest feasible number of shares. If a broker does not…
The document frames a strategy-design problem: how to turn repeated forecasts of a security’s future high and low prices into decisions to enter, hold, add to, close, or reverse a position. The assumed inputs include forecast uncertainty and the correlation…
The document considers how to divide a bankroll between two independent strategies to maximize expected logarithmic growth. Each strategy has two possible outcomes: an 8% gain or a 5% loss, with different probabilities of a gain. The allocation weights must…
The document compares approaches to allocating a fixed budget across stocks when only whole shares can be bought. One greedy method starts with one share per asset, repeatedly adds a share to the holding furthest below its target weight, and stops when the…
The document describes a lending operation in which clients receive advances against goods held in a warehouse and repay from later sales proceeds. If sales fall short, arrears can accumulate while clients continue borrowing, potentially leaving advances…
The document asks how the Kelly fraction depends on the mean and volatility of strategy returns under a normal-return assumption, while recognizing that this assumption idealizes real trading outcomes. The main answer reframes the problem as continuous-time…