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Tearsheet Feedback Request: Short Specific Returns Volatility

This is basically a convoluted momentum strategy, but defined through negation -- it latches onto whatever consistently present "alpha" that is not attributable to the "common risk factors."

I had pretty much written it off since it's not very consistent. But then it had a strong streak in the contest, so I gave it another look.

I wouldn't ever expect something like this to generate very consistent results. It has a lot going against it -- it's just a single factor, narrows down the universe to a relatively small number of stocks at a time, it's purely technical, etc. But over a long period it does appear to generate lift. So it could potentially have a place in a multi-factor strategy.

What do you guys think? Is this overfit? Is it likely to continue to produce positive returns over long time horizons?

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2 responses

Here's another out-of-sample time period. (For some reason the backtester won't let me start earlier than this.)

Doesn't look great, but maybe 2009 was especially bad for momentum-ish strategies? Might indicate adverse market regime rather than overfit? What do you guys think?

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Alpha Decay notebook

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