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By Rich B

Diversification for Trend Following Models

The Small Variations Matter In the realm of trend following, one prevailing assumption is that highly correlated assets should not be traded together, as they are unlikely to provide diverse opportunities. However, this article will challenge this notion by delving into the nuances of trade correlations versus price correlations. By examining the behavior of different […]
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By Rich B

The Many Paths of Uncertainty

As a trend follower, a key aspect of our approach lies in the way we approach risk. In fact we prefer to call ourselves risk managers as opposed to speculative traders. We view risk as being far wider than what has been reflected by the historical record and treat risk as comprising two aspects. The […]
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By Rich B

Challenging the Conventional Wisdom of Statistics in Complex Adaptive Systems – Beware of Idealised Models

In the ever-evolving landscape of financial markets, the application of traditional statistical models, such as the Central Limit Theorem (CLT), often proves to be inadequate for capturing the complexities of complex adaptive systems (CAS). These systems, which are a hallmark of financial markets, defy the conventional assumptions of linearity, independence, identical distribution, and stationarity, which […]
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By Rich B

Let’s Consider Skew

As diversified systematic trend followers, we just love the positive skew of our trade results….but to explain why, we need to dig quite deeply into what skewness means exactly. It is defined as a measure of asymmetry of a trade distribution about its mean and is expressed by the following formula. Now it is important […]
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By Rich B

Why it is So Hard to Exceed Performance Benchmarks?

In the world of the financial markets, consistently outperforming established benchmarks such as the S&P 500 is a monumental task that eludes many. This is exemplified by the SPIVA report, which evaluates the performance of actively managed funds against their benchmarks worldwide, revealing that a staggering 75% to 90% of funds fall short over extended periods. […]
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By Rich B

Let’s Get Attracted to the Notion of Path Dependence

Understanding Non-Ergodic Processes and Its Implication in Various Fields “Non ergodic” is a pivotal, yet often overlooked scientific term. To grasp its essence, one must first understand its counterpart: “ergodicity.” An “ergodic” system is one that eventually visits all its conceivable states. Think of a gas that is released into a controlled laboratory setting such […]
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