Perfect Timing by
www.randomknowledge.net Michael Kouritzin
Death, taxes ‌and volatility The only 1. Constant is change – Heraclitus of Ephesus (535 BC - 475 BC) 2. Market consistency is volatility 3. Sure non-winning strategy is buy and hold 4. Way to win is to throw your money around
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Volatility Characteristics Scary Bumpy, “Can bite you”
Volatility
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Is this an Alligator?
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Similar Colour
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Same Aspect Ratio
Same color
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Different Number of Legs
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Volatility is Good
Markets become irrational - Mispricing Computer Trading – Faster Decisions not Better Goal: Be Prepared – Fast and Smart PerfectTiming by
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Which is Better? 900
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Plan 1: Think ahead, Volatility into Returns
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Numb3rs Clip (CBS)
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www.randomknowledge.net Only
Traded XIU
Outperforming
1%/month after
Fees Paying somebody to trade
2%
Human Error -> Goal: Automate
3-4%
Small Size Cost -> Goal: Grow
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Plan 2: Sector Rotation (Mar - Apr 2012)
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www.randomknowledge.net REAL LIFE
TECHNOLOGY PLATFORM MAP Model Mathematical model of financial asset dynamics
Asset’s Fair Value
SERP Algorithm Estimation of fair asset values
45
Real Time Market Data
SPADE Strategy
40 35
Based on SERP estimates, provide asset allocation recommendations
30 25 20 15 10 5
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Asset 1
Asset 2
Asset 3
Asset 4
Asset 5
Buying Low and Selling High Random Knowledge MSCI World Index
Overvalued Asset Undervalued Asset
Backtested Performance from Dec 31, 1989 – Dec 31, 2003 PerfectTiming by
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CND $
Backtest Performance Chart Return Comparison vs. TSX Composite Jan 1990 - Apr 2004
30000000
25000000
20000000
15000000
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5000000
0
Power of Random Algorithms 1. You write down 2 #s on the back of 2 cards (can’t be equal) – Call a < b 2. I’ll flip 1 at random an exposed card (“EC”) 3. With > 50% Prob., I can guess if the hidden card (“HC”) is greater or less than EC.
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Random Algorithm 1. Generate R = N (0,1) 2. If R > EC, then guess else HC < EC .
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HC > EC
Proof by diagram a < R3 < b guess correct with 100%
R1 < a < b guess correct when EC = b i.e. 50%
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a
b
R2 > a > b guess correct with 50%
Thank you Follow us at www.randomknowledge.net Email me questions at Michael.kouritzin@randomknowledge.net
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