What is quantitative investing?

Simply put, 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 picking. Quantitative stock picking 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 stocks that are undervalued or overvalued.

This is fundamental quantification.

The trend method is a method of making corresponding investment behaviors based on different market performance, such as strength, weakness, consolidation, etc.

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 capital flows in, it should be accompanied by an increase in prices; if 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 believes that financial markets are unpredictable, prices fully reflect all relevant information, price changes obey random walks, and 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 chaotic, but behind its complex surface, there is a deterministic mechanism hidden, so there are possible

Predictive components.

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. Hedging arbitrage is a trading strategy that uses two relatively highly correlated products to perform long and short operations at the same time. When the price difference deviation of the two products exceeds the reasonable range, there will be a large

Probabilistic regression, which 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 bull and bear.

At present, the 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 the EFT arbitrage strategy to achieve success in 2013.

During 2015, profits exceeded 1 billion.

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. Options arbitrage trading refers to the simultaneous purchase and sale of call or put option contracts of the same related futures, but with different final prices or different expiration months, hoping to make profits from hedging trading positions or fulfilling contracts in the future.

trade.

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 the academic community 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.