Quantitative CTA strategy related self-study notes

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1. Concept

Quantitative CTA——
Based on the judgment of the machine, the fund manager establishes a quantitative trading strategy model through analysis, and makes investment decisions based on the buying and selling signals generated by the model. The interference of human error judgment on quantitative CTA is relatively small. Quantitative CTA also requires long-term data analysis, parameter optimization, and model update iterations. This process is very similar to quantitative stock selection.

2. Transaction object

The trading objects of CTA strategy are mainly futures and options.

1. Futures

Futures use the spot as a reference to make their own judgment on its future price, and then buy the corresponding contract, agreeing that the corresponding contract can be sold or bought at the price agreed in the contract in the future.

There are two main types of CTA strategy trading targets, commodity futures and financial futures.

• Commodity futures:
  (1) Agricultural product futures: soybeans, soybean oil, soybean meal, wheat, corn, cotton, sugar, etc.
  (2) Metal futures: copper, aluminum, lead, zinc, nickel and other non-ferrous metals and gold, silver and other precious metals.
  (3) Energy futures: crude oil, fuel oil, etc.
  (4) Black futures: rebar, coke, iron ore, rebar, etc.
  (5) Chemical futures: natural rubber, PTA, PVC, methanol, etc.

• Financial futures:
  (1) Treasury bond futures: 2-year treasury bond futures, 5-year treasury bond futures, 10-year treasury bond futures.
  (2) Stock index futures: CSI 300 stock index futures (IF), CSI 500 stock index futures (IC) and SSE 50 stock index futures (IH)

2. Options

Compared with futures, there are relatively few options varieties that can be traded in China.
Financial options include 50etf options, CSI 300etf options and CSI 300 index options.
Commodity options are distributed in four domestic options exchanges, such as Shanghai Futures Exchange (copper, rubber options, etc.), Dalian Commodity Exchange (iron ore, soybean meal options, etc.), Zhengzhou Commodity Exchange (cotton, sugar options, etc.) , Shanghai International Energy Trading Center (natural gas options).

3. Classification of trading strategies

From the classification of trading strategies, it can be divided into trend following, trend reversal, and arbitrage hedging.

1. Trend Following

It mainly makes profits by following the formed price trend, holding long positions when the trend is rising, holding short positions when the trend is falling, and closing positions when the trend ends.

2. Trend Reversal

Profit from the price reversion process through the price turning point. Hold a long position when the signal reverses upwards, hold a short position when it shows that the price reverses downwards, and close the position when it returns.

3. Arbitrage hedging

By trading related varieties/contracts. You can go long on undervalued varieties and short on high-valued varieties; you can also profit from price regression, including futures and spot arbitrage, intertemporal arbitrage, cross-species arbitrage, and cross-market arbitrage.

4. Classification of position cycle strategies

According to the position cycle strategy, it can be divided into long cycle, medium cycle, short cycle and high frequency.

• Long-term cycle: two weeks or more, up to several months; large fluctuations.
• Medium cycle: 1-2 weeks, with large fluctuations.
• Short cycle: Within 5 trading days, the volatility is small.
• High frequency: ranging from a few seconds to a day, relatively stable (commonly known as futures and options not overnight).

Some summary:

1. Configuration suggestion: Based on the characteristics of stable income, high cost performance and low correlation with the stock market, CTA strategy can enter a variety of investment scenarios. For example: if you are an investor mainly in stock funds, configuring CTA funds can provide you with an absolute return related to the low stock market, and at the same time, it can smooth fluctuations and reduce risks. If you are a fixed-income and quantitatively neutral investor, adding a little CTA to the portfolio can increase some returns and bear some relatively low volatility.

2. Advantages: CTA strategy has a better risk-benefit ratio; CTA strategy has a low correlation coefficient with stocks.

3. Reference: Winton Asset Management (Winton), Jiukun Investment, Mingluo Investment.

4. To put it simply, the income of quantitative CTA has nothing to do with the rise and fall of the investment target, it is related to the rise or fall of the investment target, that is, it is easy to make a profit in a market with high volatility. Let’s use a vivid metaphor. The volatility of the investment target is the electrocardiogram of the CTA fund’s profit. A flat or small fluctuation will not contribute to the rate of return or even a retracement. However, in the market with frequent peaks and troughs, CTA can make substantial profits. profit.