Market Neutral (MN)

Models seeking to exploit imbalances between indices, sectors and single stocks. Market neutral strategies usually take equally leveraged long and short positions in two or more different instruments. The objective is to maximize absolute returns as opposed to relative returns. We currently maintain the following models:

• Index spreads – a model utilizing highly correlated indices to generate buy/sell signals whenever the spread between the two indices in question is at extremes compared to the historical mean of defined periods.
• Sector Spreads – a model that uses Euro Stoxx’s sector index futures. Equity sectors are strongly correlated and display significant seasonal patterns which offers a pair trade opportunity. Based on past performance and cross correlations, the model uncovers extremes of specific spreads the likelihood of reversions to the mean within a certain time frame.
• Filter – a model that uses weekly and monthly return data of major equity indices’ underlying components (such as Dow Jones Industrial Average and DAX). Based on analysis of past returns, holding periods and optimal allocation of short/long exposure week-on-week and month-on-month, a pair trade idea is generated.