What is quantitative investment?

Simply speaking, quantitative investment is the process of using computer technology and certain mathematical models to practice investment concepts and implement investment strategies.

Traditional investment methods mainly include fundamental analysis and technical analysis. Different from them, quantitative investment mainly relies on data and models to find investment targets and investment strategies.

What are the main quantitative investment strategies?

The first and most important type of strategy: quantitative stock selection

Quantitative stock selection is the act of using quantitative methods to determine whether a company is worth buying. According to a certain method, if the company meets the conditions of the method, it is put into the stock pool; if it does not, it is removed from the stock pool. There are many methods of quantitative stock selection. Generally speaking, they can be divided into three categories: company valuation method, trend method and capital method.

The company valuation method compares the difference between the company's theoretical stock price and the market price obtained by the company valuation method to determine whether the market price of the stock is overvalued or undervalued, thereby finding out whether the value is undervalued or undervalued. Overvalued stocks. This is fundamental quantification.

The trend method is a method of making corresponding investment behaviors based on market performance, such as strong, weak, consolidation and other different forms. You can follow the trend or perform reversal operations, etc. This is technical quantification.

The essential idea of ??the capital method is to follow the direction of the main funds in the market. If the capital flows in, it should be accompanied by a rise in prices; if the capital flows out, it should be accompanied by a fall in prices. The capital method is essentially a trend-following strategy, following mainstream hot spots in the hope of obtaining excess returns in a short period of time. This is the quantification of trading behavior.

Stocks selected through quantitative methods can obtain excess returns through constant rotation.

The second type of strategy is: quantitative timing

The traditional efficient market hypothesis is that financial markets are unpredictable, prices fully reflect all relevant information, and price changes obey random walks. Otherwise, predictions of financial product prices will be meaningless.

However, with the development of computer technology, chaos, and fractal theory, many studies have found that the fluctuation of stock prices is not completely random. It seems random and messy, but behind its complex surface, there is a certainty hidden behind it. mechanism, so there is a predictable component. For example, a tool called the Hurst Index can be used to determine the highs and lows of the market on a larger time scale.

Based on the strategic judgment of quantitative timing, you can sell high and buy low in the market, such as buying at the bottom of a bear market and selling at the top of a bull market.

The third type of strategy is: hedging arbitrage

Hedge arbitrage is a trading strategy that uses two relatively highly correlated products to perform long and short operations at the same time. The price difference deviation between the two varieties exceeds the reasonable range, and there is a large probability of regression. This is the theoretical logic of the hedging arbitrage strategy.

For example, the stock prices of Industrial and Commercial Bank of China and China Construction Bank tend to rise and fall together. Therefore, if ICBC rises, you can sell ICBC and buy China Construction Bank. When the price difference between the two returns to normal, sell China Construction Bank and then buy ICBC. Such back-and-forth operations can obtain a profit that exceeds that of bulls and bears.

The current hedging and arbitrage strategies that can be carried out in the domestic capital market include: spot arbitrage, intertemporal arbitrage, cross-variety arbitrage, cross-market arbitrage, ETF? arbitrage, hierarchical fund arbitrage, etc.

For example, in October 2018, several private equity funds that conducted a large number of ETF transactions during the stock market crash in 2015 were heavily fined by the China Securities Regulatory Commission. Among them, Donghai Hengxin was fined more than 200 million. They used EFT The arbitrage strategy made profits of more than 1 billion between 2013 and 2015.

With the hedging and arbitrage strategy, you can obtain relatively stable returns whether it is a bear market or a bull market.

The fourth type of strategy is: option arbitrage

Option arbitrage trading refers to buying and selling the same related futures at the same time, but with different final prices or different expiration months of call or put options. Contracts, transactions in which one hopes to profit from future hedging of the position or execution of the contract.

There are various trading strategies and methods for option arbitrage, and there are many combinations of related option transactions. In particular, the high-leverage characteristics of options allowed many outstanding traders to still obtain returns of more than 50% in the bear market of 2018.

The fifth type of strategy is: asset allocation

There is a generally accepted conclusion in academic circles that the key to making real money in investment is asset allocation, not specific transactions. Through the performance attribution of major large funds, it can be concluded that 90% of returns come from correct asset allocation. In other words, market selection is more important than trading.

Quantitative investment management combines traditional investment portfolio theory with quantitative analysis technology, which greatly enriches the connotation of asset allocation and forms the basic framework of modern asset allocation theory.