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futures questions [Risk Management, Allocation]

some questions regarding Quantopian's measure of performance and risk in futures trading.

  • Is there a posted statement on how to get a futures allocation on the platform like the following article for equities?
    Getting an Allocation, June 2017 Update
  • Does anyone have resources within or without quantopian that could answer the following performance/risk measurement questions?
    .. Are measures like Beta, Sharpe, IR, well defined in the futures space?
    .. ie. : Why regress the returns of a cyclical commodity like corn against the S&P 500 index? & What is a riskless asset in the futures market?

Thanks!

3 responses

Hi,

On the allocations question, look at Jamie's new post here: https://www.quantopian.com/posts/futures-allocation-criteria.

On the other question:

  1. Beta is still defined for the futures space for the purposes of Quantopian, because one of our allocation criteria is that the Futures strategy be uncorrelated to the equity market. So low beta is still something we will be looking for. Sharpe is the same definition as before as well, it allows us to consider the risk adjusted returns of the strategy with respect to the equity market and neutral of leverage influence.

  2. As discussed above, we maintain the beta-against-SPY as a primary backtest statistic because we want Futures strategies to be uncorrelated to the equities market. There is a long history of academics attempting to use the 10 Year Treasury Bond return rate as the "risk-free rate" in constructing continuous time stochastic models (Black Scholes, CAPM etc etc). If you need some kind of risk free definition in the Futures space, I would try using the TNote 10 Yr (known as TY in our futures definitions here https://www.quantopian.com/help#available-futures) and see what happens. I can't say for sure it will be accurate, but it is a start.

Disclaimer

The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.

Hi Gerardo,

I just posted criteria for futures algos which should give you a sense of what we're looking for.

I can tell you that Sharpe will matter as well as beta. In the finance space, when someone refers to 'beta', they are typically referencing the correlation of a particular return stream to the S&P 500 index as you mentioned. But you can also think of beta in terms of any common risk factor. How much is the strategy correlated to the Fama-French factors? To a standard momentum signal? etc.

In general, we're looking for strategies that are uncorrelated to common risk factors. The S&P 500 is just a single example of that. We are working on a risk model to help you determine whether or not your strategy is generating returns because of a common risk factor. This is going to be true for futures algorithms as well.

One of the reasons we aren't looking for strategies with high beta is because investors are not interested in buying something that they can already get at a much cheaper rate (e.g. SPY ETF for S&P 500). Again, the risk model that we are building will help provide some insight into your algo's exposures.

Disclaimer

The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.

Are futures implemented for live trading or not? You are talking as if they are. But if not, why it takes forever to implement that?