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u1234


Total Posts: 9
Joined: Jul 2018
 
Posted: 2018-07-09 05:53
Edgestream / Merfin Sharpe sub 1, but my info is much dated.

sigma


Total Posts: 108
Joined: Mar 2009
 
Posted: 2018-07-09 06:49
u1234, thanks for interesting inputs...

>> ... but their GSA Capital partners made an allocation to a FX manager XTX in 2009 till 2015 who had a Sharpe of 27 ...

Sharpe of 27? Tell me this is not a typo?

levkly


Total Posts: 28
Joined: Nov 2014
 
Posted: 2018-07-09 09:46
Average holding around 3 weeks with sharp 3
Is it possible?

Any other examples of this style trading ?

u1234


Total Posts: 9
Joined: Jul 2018
 
Posted: 2018-07-09 13:55
Not a typo from what I heard. Max drawdown 4 hours. But I never met them personally, this is mostly from Russian friend who was also active in FX, and had a few friends there. My friend had seirious interviews there too, but was rejected (from what his friends at that firm told him) because he didn’t graduate from the right Russian univ. Strategies including arbing various EBS quotes, between quotes between different FX ECNs and other providers. Super selective from what I gathered from my friend and super smart.

sharpe_machine


Total Posts: 7
Joined: Feb 2018
 
Posted: 2018-07-09 14:02
Out of curiosity, which Russian univ. are considered right? Phystech, Moscow state and NES?

kuebiko


Total Posts: 12
Joined: May 2018
 
Posted: 2018-07-09 18:59
@u1234, this is awesome. Much appreciated. To be honest if there’s any more color you’re willing to share on any of the other funds or shops (still curious about quantbot!), I’d love to hear it.

Anyone heard of Athena capital research?

Re: medallion running 3-4 Sharpe on ~3 week holds... it’s tough to believe but with many uncorrelated signals and diversification across a huge universe of instruments, I could imagine it’s doable... what would you estimate is the avg. hold of other places running 2.5+ (PDT, quadrature, etc)?

EspressoLover


Total Posts: 315
Joined: Jan 2015
 
Posted: 2018-07-09 20:46
@u1234

Thanks! for the color.

@sigma

Sharpe of 27 isn't really unusual for HFT. It's quite common for shops like Virtu to report never having a down day. That implies a Sharpe of 16 or more. At some point it doesn't really matter, since more of the standard deviation is driven by day-to-day variation in the volume rather than position risk.

@levkly

It's feasible But difficult. You'd need to diversity across a large set of orthogonal factors/exposures, and ruthlessly hedge out any exposures that you don't have signal on. Some back of the envelop math...

Let's start by saying you have the equivalent of 225 orthogonal factors. Obviously there's a lot more than this number of securities in the world. But with a $4 billion fund levered 5X, to get 1/225 of your portfolio requires $90 million in exposure, so most of your returns are driven by blue chip stocks, liquid futures, and major FX pairs. 225 would be the upper-limit even for a globe-spanning operation.

Let's say the typical factor has a daily volatility of 50 basis points. This is roughly the idio vol for a typical US stock. This number doesn't matter too much, the logic mostly holds if you want to scale it up or down. At a three week horizon, that's 193 basis points of volatility.

3.0 annualized Sharpe means a Sharpe of 0.72 at the three week horizon. Across 225 uncorrelated factors that's an individualized Sharpe of 0.048. Using the above volatility, the average trade needs to net 9.2 basis points of return after costs. That doesn't seem huge, however using the three-week horizon window the net signal needs to achieve an R-squared of about 0.2% on the orthogonal factor returns. That's pretty substantial at a weekly horizon.

Obviously this is a toy model, but I think the numbers don't look substantially different for reasonable extensions or modifications.

That being said, I'm relatively skeptical that the bulk of Medallion's returns come from strategies at these horizons. For one, there's the ITG lawsuit from 2009. Basically they were trying to arb out discrepancies between the Posit dark pool and lit exchanges. That certainly looks very HFT-like to me. For another, before merging into Medallion, Nova was doing 10% or more of the volume on the NASDAQ back in the 90s. It seems unlikely given the shifts favoring electronic trading that they would have significantly substantially retreated. Another factor is the amount of computing power they supposedly have. You don't need that many FLOPs to evaluate interday strategies.

I do believe, that there's probably some definition of "average holding time" for which the statement is true. Especially if they're counting very long-lived portfolio hedges or cash instruments. Longer-term strategies tend to be hedged and levered, whereas short-term strats bias flat and don't hedge nearly as much. At any given time the median position in the portfolio, weighted by notional, could be held for a long-time. But I'm fairly confident that a substantial proportion of Medallion's profits come from intraday signals and strategies.

Good questions outrank easy answers. -Paul Samuelson

u1234


Total Posts: 9
Joined: Jul 2018
 
Posted: 2018-07-10 03:10
Voloridge is another fund rarely heard off. I think last I heard they had around 1.5bn and hard closed with a waitlist of 13bn of interested capital. Sharpe of around 1.7-1.8 from what I heard 2 years ago. David Vogel is a ML expert.

@EspressoLover
A friend who worked at one of Japanese banks in NY did the lit vs dark Arb for a while. Sharpe of 5 while he worked there. Never made money after he quit to launch his own strategy. The strateg went dead by 2013-14. It was mostly execution alpha. More of a technology thing than alpha from what I heard. At peak he made only 5mn for the bank, barely anything. The alpha from this Arb was really small even at peak.

wpdupjuj


Total Posts: 1
Joined: Jul 2018
 
Posted: 2018-07-10 04:33
My advisor has sent many students to Setauket.
All of them must be using techniques very close to what we picked up in our research because the application is quite obvious, and it's likely the basis for improving a high capacity strategy that should outweigh the intraday piece at their size.
The speculation is fairy dust as usual.

/* Nova was doing 10% or more of the volume on the NASDAQ back in the 90s. */

90s is a long way back.
My team averaged almost 10% ADV in the entire of US cash equities 2006-2009.
Ported a few of the same strategies in 2016 when I had to deal with US equities again.
Barely grazed 1% ADV.

/* You don't need that many FLOPs to evaluate interday strategies. */

Deeply mistaken.
DE Shaw's cluster is larger than Rentec's, at least 5000 nodes.
PDT's is about half of that.
Tower has about 8-9 nodes per employee.
Go figure.

u1234


Total Posts: 9
Joined: Jul 2018
 
Posted: 2018-07-10 04:58

I interviewed some guys who worked there for a year. Told me that their experience was that they were promised big bonuses to plug in their code in to their servers and once the code / strategy was implemented, the guys were let go. Not sure how much of this is true.

Strange


Total Posts: 1409
Joined: Jun 2004
 
Posted: 2018-07-10 05:13
"Told me that their experience was that they were promised big bonuses to plug in their code in to their servers and once the code / Strategy was implemented, the guys were let go. Heard an exactly similar story with Domeyard from candidates I interviewed recently."

Do you think that IP has any real value once you let go of the trader that designed it? Just curios, I keep hearing about this type of stuff, but I can't imagine code having much value without the people that found the alpha and built it.

I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'

prikolno


Total Posts: 1
Joined: Jul 2018
 
Posted: 2018-07-10 08:25
Hey @u1234, do you have a private email?

"Heard an exactly similar story with Domeyard from candidates I interviewed recently."

Sorry to hear that! I'm happy to share our side of the story and let you judge for yourself.

I can count the number of researchers who are no longer with the firm with one hand and none of them actually match the description, but I know exactly whom you're talking about. It's not my personal principle to rate people that I've worked with negatively, however I can confirm that that was not the reason for his firing. He had barely started on any strategy code at the time he was fired, and in fact had asked for a 6 month extension the day before. Happy to give more color if it's important to you. I do know the founders of a couple of his former employers and recruiters at several of the other companies he has spoken to after we parted, and they can provide you with other testimony about the inconsistencies among what you've heard.

Also, a public service announcement: we're not "offering infrastructure". Don't move out to Cambridge if that's what you want, there's firms that specialize in that in NYC! I'm biased because I wrote a decent amount of the infrastructure, I think it's fast and I dare say we have better tools than most of the firms you've listed, but it wasn't designed for plug-and-play. We made this trade-off because we didn't want a siloed environment. Everything is in a single monolithic repo, everyone has access to every line of code and there's parts of the API that are not well-documented.

++

"Do you think that IP has any real value once you let go of the trader that designed it?"

Moving on to a more meaningful topic, @Strange I think the continuity of IP value is a function of the type of IP you're referring to and the firm's culture. In my experience, it's definitely possible to retain the use of the base predictors, market simulation, model-related data structures, quant dev tools and common optimization routines even for years after the author has left. Of course you're not going to rewrite the same couple of souped-up imbalance signals every time 1 guy leaves right?

Despite some reusability, I don't think it ever economically makes sense to promise bonuses and churn staff immediately after they implement some code. There's usually a lot more to it and you're just hearing the resentful side. For starters, I feel it's a lot costlier to hire and train employees than it is to retain them at fair market value. Emphasis on 'fair market value', because I know many employers encounter the situation they cannot offer a higher payout to a senior PM, researcher or trader because there's equally competent employees willing to do the same work for less. This is a different case where their employees are not involuntarily being terminated but rather they are voluntarily deciding to leave.

It also depends on the culture of the firm. It's easier when you have good coding practices in place and cross-pollination among your team members. I'm not a fan of turnover, but I actually admire a few of our competitors for having built up an incredible training cycle where they've been able to turnover their "head of trading" every one or two years and still keep on killing it. It's not possible to do so unless you have a good retention rate or slow alpha decay on your IP and a strong management team. Good for them.

ronin


Total Posts: 314
Joined: May 2006
 
Posted: 2018-07-10 11:49
> I can't imagine code having much value without the people that found the alpha and built it.

It happens more than you may think.

"Signals? We have literally hundreds of different signals, across equities and futures. We've been in the business since the 1990s. We use this really smart allocation engine to switch weight between signals."

"Right - so what sort of Sharpe can you get from hundreds of signals and smart allocation?"

"0.75. We've produced nothing but volatility since 2013."

I must have had this conversation dozens of times.


"There is a SIX am?" -- Arthur

u1234


Total Posts: 9
Joined: Jul 2018
 
Posted: 2018-07-10 12:18
@prikolno
Not important, but good to hear your side of the story. Best .

kuebiko


Total Posts: 12
Joined: May 2018
 
Posted: 2018-07-10 13:10
@ronin yeah it’s a nice story you seem to hear a lot. The straightforward problem is (apart from the possibility that some of the signals actually have negative sharpe) that the benefits of combining multiple signals rapidly diminish when the signals have even modest positive correlation. And at low frequencies building a nontrivial allocation engine is subtle.

kuebiko


Total Posts: 12
Joined: May 2018
 
Posted: 2018-07-10 13:11
@wpdupjuj care to name your advisor? ;)

ronin


Total Posts: 314
Joined: May 2006
 
Posted: 2018-07-10 13:28
@kuebiko,

I agree. Once the signals start decaying, they are basically random. And if you don't really know why they worked in the first place, that's it.

> at low frequencies building a nontrivial allocation engine is subtle.

Low frequencies is where I live these days. Allocation is allocation - it's a case of garbage in, garbage out. When you find yourself relying on your allocation engine, your time is up.


"There is a SIX am?" -- Arthur

EspressoLover


Total Posts: 315
Joined: Jan 2015
 
Posted: 2018-07-10 16:51
@u1234 and @wpdupjuj

Those are all fair points. I've updated my priors.

> My advisor has sent many students to Setauket. All of them must be using techniques very close to what we picked up in our research

I'd caution against leaning too heavily on this. RennTech is a huge operation, and its current systems are the cumulative result of more than a thousand researchers. A single person's experience, or even a group of people's experience is likely to fall short of the whole picture. It's a little like the fable of the blind men each touching a different part of the elephant.

I certainly believe that Medallion has some strategy that utilizes whatever this technique is. However it'd be difficult to say how substantial a proportion of the fund's profits are attributable to this technique. And I'd think it'd be outlandish to say that the answer is all or even most of them. Medallion does a whole bunch of things very well, and it's been doing so across a huge span of time in terms of market regimes and structure. The secret sauce definitely has more than one ingredient.

Good questions outrank easy answers. -Paul Samuelson

u1234


Total Posts: 9
Joined: Jul 2018
 
Posted: 2018-07-12 03:27
@EspressoLover
>> But I'm fairly confident that a substantial proportion of Medallion's profits come from intraday signals and strategies.

You definitely are more familiar with this than I am.

Had a question to ask you. Some time ago I looked at their 13F data and they seemed to have a way more holdings than their RIEF fund (back then no RIDA or RIDGE) and it looked like they had meaningful overnight positions for sure.

how do you define intraday signals and strategies? Do you mean: (i) strategies that close out by the end of the day, or (ii) strategies that have an average holding period less than a day, or (iii) strategies that are more likely to buy / sell intra-day (rather than a dumb VWAP per se) on limits, stops or other levels for trades like mean-reversion of something (i.e. intra-day move aware), or (iv) some other definition ?

Would you have any idea what percentage of their profits come from intraday strategies?

Strange


Total Posts: 1409
Joined: Jun 2004
 
Posted: 2018-07-12 05:39
"most of your returns are driven by blue chip stocks, liquid futures, and major FX pairs"

My guess is that Sharpe being a rather misleading number here. For example, it's totally normal to generate Sharpe of 2-3 in fixed income by doing things like OTR or futures basis, which have pretty low turnover. And we are talking serious size. I think that once you're running an integrated firm, are also all kinds of strange synergies between lower and higher turnover strategies, where your higher turnover benefits from volatility and, in effect, hedges your lower turnover book. Does not mean that's what RenTech is doing, but it's a possibility.

I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'
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