THE 4 QUADRANT APPROACH
Our proprietary Alternative investment Portfolio, provides clients with the ability to generate Alpha over the short to medium term, combining various speculative strategies to diversify the risk within one investment portfolio.
Positioning clients into profitable strategies during all market types with the objective of generating Alpha.
Types of Markets
If one breaks the market down into its core elements they consist of:
- Bullish moves
- Bearish moves
- Consolidating moves (Side-ways)
- And Volatility
Once we defined the various types of markets, we then went on to define the strategies we can implement to monitor and mitigate risk to achieve the find the most favourable profit factor and success rate over the short term.
What is quantitative analysis?
Quantitative analysis is a technique using mathematical and statistical modelling, measurement, research and history to understand behavioural trends and to provide the ability of forecasting more accurately.
What is qualitative analysis?
Qualitative analysis allows us to use subjective judgment to analyse the market based on non-quantifiable information adding the human element to assist in the investment decisions.
Our 4 Quadrant investment process
We have incorporated the most profitable strategies over the last 15 years, to establish a winning universe of stocks with defined timing, fundamental and technical parameters to ensure robustness.
Within every major quadrant we run multiple strategies, which have been stress tested, back tested, optimized and walked forward in order to be robust across multiple markets.
- From a Timing perspective this has allowed us to understand when the most favourable time to enter and exit out of various positions by following the defined strategies.
- From a Fundamental perspective we have found the best results come from the top 100 listed companies on the FTSE, Nasdaq and S&P. These are also the most liquid stocks listed on their respective exchanges.
- From a Technical perspective, this allows us to time the market and manage our risk efficiently, while implementing trading strategies that have a positive expectancy to deliver consistent returns
- To ensure Robustness we made sure that all the strategies we developed could be run on different securities and markets.
Why bringing in both is important?
Incorporating both qualitative and quantitative strategies, we have brought the best of both worlds, creating better certainty in our investment decisions and outcomes.
Our Quadrant comprises of 3 Quantitative strategies and 1 Qualitative strategy.
Identifying securities that have become mispriced and will revert back to their mean over the shorter term.
- % of Winning trades: 61%
- Profit factor: 2.17
- Higher hit rate
- Shorter term in nature
- Looking to trade at inflection points
- % of Winning trades: 38%
- Profit factor: 3.27
- Lower hit rate
- Medium-term in nature
- Looking to buy securities that are trading higher, managing the risk and not catching falling knives.
- % of Winning trades: 68%
- Profit factor: 2.37
- Removing risks by being both long and short the same value i.e. it doesn’t matter which direction the market moves, provided the relationship between the two securities continue to either converge or divergence
- Medium term in nature
- Diversifying out risk: Commodity, Interest rate, Currency, Market, Sectoral etc
Structural and special opportunities
- % of Winning trades: 69%
- Profit factor: 2.68
- Being able to make decisions that would fall out of the spectrum of the quantitative strategies
- Ability to be involved in a different style of trading
- FTSE – The FTSE 100 Index
- OEX – The S&P 100 Index
- NDX – The Nasdaq 100 Index
- JTOPI – the JSE Top 40
We aim to diversify trading strategies to be positioned at all times to take advantage of a few market factors listed above while mitigating risk into each quadrant at the same time.
By doing this we achieve uncorrelated returns within a portfolio by using a blend of multiple trading strategies with sound risk management principles.