Portfolio Construction
Allocation targets, risk factor decomposition, and constraint monitoring across all active strategies.
The optimal portfolio improves risk-adjusted returns by adding uncorrelated alphas from the research pipeline and retiring decaying signals.
→ Highest marginal Sharpe contribution. Low correlation with other live alphas. Increase to capture more of the signal before decay.
→ Strong diversification benefit. Negative correlation with momentum book provides hedging value.
→ Unique signal source (options market). Near-zero correlation improves effective bet count from 3.7 → 5.2.
→ Elevated correlation with market factor (0.23). Decay rate accelerating at 0.08/mo. Reduce exposure and monitor.
→ Negative marginal Sharpe contribution. Rolling Sharpe collapsed from 1.8 → 0.94. Signal is crowded — retire immediately.
→ Decay rate 0.15/mo. Correlated with EARN_REV_MOMENTUM (ρ=0.18). Wind down gradually over 2 weeks.
→ Highest Sharpe in research pipeline (2.31). Negative correlation with existing book. Recommend promoting to paper then live.
→ Unique vol-surface signal, almost orthogonal to existing factors. Once paper-validated, allocate 4%.
Strategy Allocation
| Strategy | Weight | Target | Sharpe |
|---|---|---|---|
Stat Arb | 25.0% | 25.0% | 2.14 |
EM Carry | 18.0% | 20.0% | 1.87 |
Momentum | 22.0% | 20.0% | 1.62 |
Mean Reversion | 15.0% | 15.0% | 1.43 |
Earnings | 12.0% | 12.0% | 1.91 |
Vol Arb | 8.0% | 8.0% | 2.31 |
Risk Decomposition
| Factor | Marginal | % Total | Standalone | |
|---|---|---|---|---|
| Market | 1.82% | 31.4% | 2.94% | |
| Size | 0.74% | 12.8% | 1.21% | |
| Value | 0.91% | 15.7% | 1.48% | |
| Momentum | 1.12% | 19.3% | 1.87% | |
| Volatility | 0.53% | 9.1% | 0.89% | |
| FX | 0.42% | 7.2% | 0.71% | |
| Rates | 0.26% | 4.5% | 0.44% |