Analytical Investments Aug10


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Analytical Investments Aug10

  1. 1. Analytical Investments, LLC<br />Riding the Trends, Not Fighting the Market: Equities, ETF’s, Options, Arbitrage<br />(August 2010)<br />Proprietary Market Scanning, Trading and Portfolio Management System<br />Nick Tishchenko, PhD<br />Analytical Investments, LLC<br />(212) 664-1730<br /><br />1<br />
  2. 2. Why Use Quant Systems<br /><ul><li>Good Fundamental Story and Attractive Valuation Do Not Prove That the Time is Right to Buy or Short the Stock
  3. 3. Quant System Is A Powerful Tool for Trading and Portfolio Management, Not Just a Supplement to Fundamental Research. It Identifies Early Changes in Market and Stocks Trends – Both Long and Short, Sets Entry/Exit Points for Portfolio Positions with Near-Term and Long-Term Targets
  4. 4. Real-Time Computerized System Helps Automatic Position Scaling and Portfolio/Sector Rotation With Risk Management and Discipline in Entry and Exit </li></ul>2<br />
  5. 5. What Quant System Gives PM<br />Quantitative “Must-Have” Analysis for Buy-Side: <br /><ul><li>Top-Down Assessment of the Market
  6. 6. Allocation Strategy – Long/Short Exposure to Right Sectors
  7. 7. Rotation and Scaling of Portfolio Positions Within Investment Objectives </li></ul>3<br />
  8. 8. “Top-Down” Market Assessment<br />SP-500 (Last 1,079.25):<br /><ul><li>SP-500 is in a near-term “Short” mode since early August 2010 after reaching and failing to break above our 3Q’10 High-target of 1,126.
  9. 9. Near-term downside risk for SP-500 is our Aug’10 Low-target of 1,047
  10. 10. Current dynamic stop on SP-500 Short trade is 1,100</li></ul>4<br />
  11. 11. Best/Worst Market Sectors - 2010<br />Best - Long Sector<br />Music & Video Stores<br />Worst - Short Sector<br />Home Health Care<br />5<br />
  12. 12. Portfolio Scan and Positions’ Scaling<br />Longer-Term Trend – You Don’t Want to Trade Against It<br />Customer’s Stock List<br />System Ratings on Stocks<br />Dynamic Stop for Each Trade<br />Your Profit if You Followed the System’s Last Signal on Weekly<br />Trade Direction on Daily, Weekly and Monthly Time Frames<br />Duration of the Trade (Bars)<br />6<br />
  13. 13. How The System Works<br />Pre-Determined Stock Lists - Investment Themes:<br /><ul><li>Trading on System’s signals around existing portfolio positions within the fund’s mandate
  14. 14. Rotating between portfolio positions within portfolio’s investment theme
  15. 15. In both cases the System provides selection of Long and Short candidates within pre-determined list of stocks. Each trade setup includes Entry point and targets for the current and the next Week, Month or calendar Quarter with a dynamic stop for each trade/position</li></ul>7<br />
  16. 16. How The System Works<br />Playing Market’s Own Longer-Term Moves by Identifying Trending Sectors and Stocks:<br /><ul><li>Computerized real time system scans entire market picking trending sectors and individual stocks on a desired time frame pre-determined by investment time horizon.
  17. 17. The system selects stocks for portfolio as well as sizes of positions depending on available cash, desired number of positions, strength of uptrend/downtrend, trading volume or other investment objectives </li></ul>8<br />
  18. 18. Ideas Behind the Algorithms<br /><ul><li>Analysis of Price Dynamics – the Rate of Price Changes Near Calculated Turning Points, Provides Trade Buy and Sell Signals
  19. 19. Similar Algorithms are Used to Calculate Dynamic Stops for Each Position Providing Effective Risk Management and Profit Protection
  20. 20. The System Calculates Price Targets for the Next Week, Month, Quarter and Calendar Year Allowing Effective Hedging of Positions with Derivative Instruments</li></ul>9<br />
  21. 21. Example: SPY Apr’08–Aug’10<br />Arrows Show Trades Generated by the System on Weekly Time Frame<br />10<br />
  22. 22. System Generated Targets: SPY<br />Target for calendar Year<br />Target for calendar Quarter<br />Target for calendar Month<br />Targets are generated beforethe beginning of respective period<br />11<br />
  23. 23. Quant Products Beyond Equities<br /><ul><li>Options:
  24. 24. Scanning the market for stocks with strong reversal signals near Monthly/Quarterly targets
  25. 25. Setting options trades with strike prices near targets
  26. 26. Arbitrage:
  27. 27. Scanning the market for Long/Short candidates – both individual equities and industry sectors
  28. 28. Setting Long/Short equity pair trades and Long/Short baskets of equities based on Long/Short system signals for industry segments
  29. 29. CDS Spreads:
  30. 30. Selecting reference equities with strong reversal signals and trends as leading indicators for CDS trades</li></ul>12<br />
  31. 31. Quant Setup for Options<br />NFLX (Buy Signal on Aug 2, 2010):<br />Actions on a Buy Signal:<br /><ul><li>Long trade in NFLX equity @$103.80
  32. 32. Selling NFLX Puts with strike price near Aug’10 High-target of $116.89 or 3Q’10 High-target of $135.80
  33. 33. Buying NFLX Calls with strike price near Aug’10 Low-target of $88.20</li></ul>Writing Options with Strike prices near High and Low Monthly targets<br />Buy Signal on Aug 2, 2010<br />13<br />
  34. 34. Portfolio Management<br />Setting the number of portfolio positions<br />Setting frequency of real-time portfolio scan<br />Setting size of trade (less than 0.5% of weekly/monthly trading volume)<br />14<br />
  35. 35. Back Testing on SPY’s <br /><ul><li> System executed 84 of 120 (70%) trades profitably from Jan’98 to Jul’10
  36. 36. Annual returns for SPY exceeded 20% in 83% of years during 1998-2009
  37. 37. Highest return was 56.9% in 2008; Lowest return was 8.4% in 2006
  38. 38. Back test assumes cash account and commissions of $0.03 per share</li></ul>15<br />
  39. 39. Back Testing on QQQQ’s <br /><ul><li> System executed 84 of 112 (75%) trades profitably from Jan’98 to Jul’10
  40. 40. Annual returns for QQQQ exceeded 30% in 92% of years during 1998-2009
  41. 41. Highest return was 163% in 2001; Lowest return was 28.7% in 2005
  42. 42. Back test assumes cash account and commissions of $0.03 per share</li></ul>16<br />
  43. 43. Back Testing on CTXS <br /><ul><li> System executed 80 of 121 (66%) trades profitably from Jan’98 to Jul’10
  44. 44. Annual returns for CTXS exceeded 70% in 83% of years during 1998-2009
  45. 45. Highest return was 475% in 2002; Lowest return was 37.1% in 2005
  46. 46. Back test assumes cash account and commissions of $0.03 per share</li></ul>17<br />
  47. 47. Back Testing on NFLX <br /><ul><li> System executed 53 of 80 (66%) trades profitably from Sep’02 to Jul’10
  48. 48. Annual returns for NFLX exceeded 115% during 2003-2009
  49. 49. Highest return was 305.7% in 2004; Lowest return was 114.6% in 2007
  50. 50. Back test assumes cash account and commissions of $0.03 per share</li></ul>18<br />
  51. 51. Designer of the System<br /><ul><li>Dr. Tishchenko has been ranked #1 by Bloomberg in 2009 and recognized as a #1 Stock Picker by The Wall Street Journal’s Best of The Street Survey for his fundamental equity research in his covered Sector. Average return on his stock recommendations in 2009 exceeded 74%. His 13-years long Wall Street career as Senior Equity Research Analyst started in 1997 at ABN Amro Securities after a career as a Physicist at Lawrence Livermore National Laboratory.
  52. 52. Dr. Tishchenko has worked on real-time quantitative and technical trading for the past 15 years. The latest generation of his system has been successfully implemented for real-time portfolio analysis and market scanning, resulting in effective stock picking, trading, and portfolio risk management. The System was successfully deployed since 2006 at several large technology funds for real-time monitoring of equities trading in the US, Europe, Japan, Taiwan, Korea, Thailand, India, and China. The System has been used to trade commodities and index futures – Oil, Gold, Nasdaq, S&P500 and DJ.
  53. 53. Dr. Tishchenko holds a Ph.D. in Theoretical Physics from Institute of Atomic Energy (Moscow) and a M.Sc. in Theoretical Nuclear Physics from Moscow Institute of Physics and Engineering. During his scientific career Dr. Tishchenko’s achievements were recognized by multiple prestigious scientific awards, including the All-USSR Young Scientist of the Year Award and three Kurchatov Awards in Theoretical and Mathematical Physics.</li></ul>19<br />