First off, I hope that you can join us this Tuesday, October 20 for Monitoring and Rebalancing of Your Hedge Positions in Changing Markets, the third webinar in our “Best Practices in Hedging” series. If you missed the previous webinars in this series, you can view the recordings and slide handouts via the following links: Quantitative Evaluation of Hedge Baskets and Creating Custom Hedge Baskets.
In our prior Factor Spotlight, we observed that in a Presidential Election month, US market volatility* is 15-25% higher on average than any other month.
Design Methodology to Create A Factor-Targeting Basket
We leverage an intuitive and repeatable framework for the creation of any factor basket through our platform. As shown in the diagram below, the process is largely 3 steps:
This approach is very repeatable and can be automatically applied to rebalance periodically (e.g. monthly) or more frequently if the factor characteristics of the securities changes quickly. Let’s examine how this approach works for the construction of a Beta-Targeting basket.
We examine our Beta-Targeting basket, built as of October 14th, 2020, by taking a look at the some of the basic properties of the equity-market neutral portfolio as a whole, as well as the long and short legs separately.
An investor looking to achieve a higher/lower Beta hedge ratio or a higher %Risk from the Beta factor can certainly adjust the SmartTradeTM parameters to achieve these goals. Following a robust process as outlined in our webinar Quantitative Evaluation of Hedge Baskets can ensure that the hedge is stable and the asset mix is desirable.
US & Global Market Summary
US Market: 10/12/20 -10/16/20
Please don’t hesitate to reach out if you’d like to discuss the election’s impact on your portfolio in further detail, or other factor trends that may be affecting your performance.