“

Quant trading uses computer algorithms to identify trading opportunities. The process of designing algorithms usually involves back testing, and more recently the advance of machine learning and deep learning models has made new areas possible (e.g. social sentiment analysis). The algorithms can then be written into APIs connected to trading platforms. (e.g. Interactive Brokers), this allows trades to be executed automatically during the day.

Although it is computer driven, the ongoing success of quant strategies require constant rebalancing of algorithms to manage changing risks and market conditions. Quant traders often comes from a computer science or maths background, with a strong understanding of finance.

At Manuka & Co, we have developed our own ‘market optimizer’ that uses an algo-on-algo approach to re-assign weighting of our strategies according to market characteristics.

Although we track over 60 signals, our team has deliberately kept each individual algo to contain only a few signals. This carries two benefits: i) prevents over-fitting and inter-correlation between algorithms; and ii) this approach enables us to clearly identify what is or is not working and take small corrective steps in our weekly review. When it comes to managing risks, simpler is better.

The short and simple answer is NO. We focus on traditional markets with a long history of data available.

The so called ‘tail-risk’ relates to one-off events (e.g. outbreak of a pandemic, or war) that causes irrational behavior. Whilst such events are out-of-model, it is possible to have checks and balances in place to mitigate its impact.

During our own track record, we have experienced the second largest point drop in S&P history, and the biggest ever drop in WTI crude (to negative prices). In those times, we took steps to reduce trading frequency, tightened the stop loss limits and placed more emphasis on hedged bets. With this mindset we have outperformed global markets in the last several downturns and tail risk events.

‘Market neutral’ generally means a portfolio that generates returns that are uncorrelated to the market. Most commonly this involves long short strategies that aims to produce positive returns in both up and down markets.

At Manuka & Co, we have kept the correlation of our returns with major indices including S&P and HSI to less than 0.1. This is a reflection of the diversified set of strategies and markets we trade in, and the efforts placed by our researchers to ensure a lot inter-correlation between algorithms.