“Harry has lost his glasses, not a covariance matrix in sight”

Wifey White Paper @WifeyAlpha

“The long-only program is not a black box, the models are targeted machine intelligence reactive risk systems that focus on short-term multi-asset positioning (the next 24 hours) based on a given level of market risk at a given point in time.

The program combines multiple systems in a fully systematic portfolio generating low double digit annual returns with single digit realised volatility, shallow drawdowns and convex returns.

The program adopts unique machine intelligence approaches to multi-asset portfolio selection that is free from cross-asset correlations in portfolio optimisers.

To be clear, there are other ways to hedge a risky portfolio by using equity and credit derivatives (normally involving leverage and shorting of deltas and/or long vols as a hedge), often executed in large complex non-linear payout structures but here the resulting portfolio

would look more like a hedge fund than risk parity. This highlights the elegance and simplicity of the program as an unleveraged long-only multi-asset portfolio, trading highly liquid linear payout securities.

Hedge Fund Risk and Drawdowns (2021) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3783426

We do not like mean-variance or risk parity, and we believe it is time to exit Modern Portfolio Theory based allocations in favour of a non-correlation based approach.”

Wifey White Paper

Machine Intelligence Alpha https://twitter.com/ChiefQuant/status/1477242901587443721

Machine Intelligence Cheatsheets https://twitter.com/ChiefQuant/status/1477229378824245250

“On 15th March 2020, the Fed acknowledged the severity of COVID-19 and on 23rd March 2020 announced infinite quantitative easing. These steps restored market functioning and liquidity which defined the bottom in global equity prices in 2020.

The Fed effectively bailed out the risk parity sector. The performance of risk parity managers varied in this period of fragile liquidity, and drawdowns ranged from -15% to -50% compared to a drawdown of -1.6% for the program.

This is not surprising given the dependence on asset class correlations, and in particular the equity-bond relationship in limit-down markets.”

Wifey White Paper

“Further research was conducted, and it has confirmed the validity of weekly observations. The portfolio results were positive, and these spin-off systems are now used in the program.”

Wifey White Paper has scalability with a high ‘Project Sharpe Ratio’.

The terms “red pill” and “blue pill” refer to a choice between the willingness to learn a potentially unsettling or life-changing truth by taking the red pill or remaining in contented ignorance with the blue pill. Terms refer to a scene in the 1999 film The Matrix @WifeyAlpha

Portfolio Selection
Harry Markowitz (1952)
https://www.jstor.org/stable/2975974?refreqid=excelsior%3A935db3b6081329aecc2159058bf0a831
‘Blue Pill Paper’

What is the market share in AUM terms of Mean-Variance? If Risk Parity is $500 billion AUM.

The Stock-Bond Correlation (2021)
https://jpm.pm-research.com/content/47/3/67 

Markowitz’s Curse

Stock-Bond Correlation from 1950

The Myth of Diversification Reconsidered (2021)
https://www.statestreet.com/content/dam/statestreet/documents/Articles/jpm-the-myth-of-diversification-reconsidered.pdf

The Black Swan

“We accept that some assets react differently under extreme market stress. For example, the only profitable long trades in limit-down risky markets are US Treasury bills and equity volatility. Cash and Volatility are both Queens. Risk is King.”

(Wifey White Paper) @WifeyAlpha