Most traders have heard of the role quantitative analysts, or “quants” play on Wall Street. Quants use advanced mathematical and statistical modeling to anticipate market moves and stay one step ahead of unsophisticated traders.
Even professional active fund managers have found it extremely difficult to time the market in recent years. Active fund managers are getting desperate after more than a decade of underperformance has driven more and more money into ETFs and passive funds.
Surprisingly, despite the edge that quants and big data can potentially provide, BCG recently reported that less than half of the 153 asset managers the firm surveyed use advanced quantitative analysis.
How Do Quants Help?
Macrowonk is a quantitative analysis firm that uses its unique, complex algorithm to identify economic signals and predict how the signals will impact financial markets based on massive hoards of data. The algorithm performs more than 3,000 daily calculations based on real-time economic data to compute scores that underpin Macrowonk’s market indicators.
Quantitative analysis is filled with complicated jargon and vague buzzwords, but Macrowonk provides concrete examples of ways its analysis can be practically applied to an investment portfolio.
Case Study
In one recent case study, Macrowonk applied a filter to the popular S&P 500 Index tracking ETF, the SPDR S&P 500 ETF Trust SPY 0.02%, to demonstrate its algorithm’s power to identify economic signals that could help investors avoid the type of large market sell-offs that are typical of economic recessions.
Using historical economic data, Macrowonk found a potential sell signal in the June 2007 U.S. Employment and Housing Data. In the eight months that followed, the SPY ETF dropped 11.8 percent during the trough of the U.S. recession. The SPY eventually recovered and delivered an overall gain of roughly 100 percent from 2004 to 2016. The ETF’s max drawdown during that period was a troubling 56 percent.
By applying the Macrowonk filter, traders could have achieved a 138 percent overall gain in that period. Perhaps most importantly, they could have avoided much of the stress and uncertainty of the recession by reducing their max drawdown to only 14.9 percent.
The Power Of Quantitative Analysis
Recession-proofing a portfolio is…
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