Strategy lab
Every strategy from 151 Trading Strategies and all 101 Formulaic Alphas as formulas you can edit and backtest on ten years of daily stocks, ETFs, futures, forex and crypto data. Free, in your browser.
6.3.1IndexesReference
Dispersion trading – subset portfolio
Dispersion using only the most useful constituents, with a statistical risk model in place of the unstable sample correlation matrix.
Why there is no chart
Implied volatilities for the index and its constituents.
The lab runs on daily prices for stocks, ETFs, indexes, futures, currencies, crypto and Treasury yields. This strategy from 151 Trading Strategies depends on data outside that set, so it is explained and formalised here rather than backtested.
Hypothetical backtests on daily closes with no slippage unless you add costs. Survivorship bias applies: the stock list is today’s large caps. For learning, not investment advice. Data: Yahoo Finance via yfinance.
- Source
- 151 Trading Strategies
- Section
- 6.3.1 · Indexes
- Asset class
- Indexes
- In the lab
- Explained, not backtested
Dispersion trading – subset portfolio (6.3.1)
Dispersion using only the most useful constituents, with a statistical risk model in place of the unstable sample correlation matrix.
Data it needs
Implied volatilities for the index and its constituents.
More in Indexes
- 6.2 Cash-and-carry arbitrage
- 6.3 Dispersion trading
- 6.4 Intraday arbitrage between index ETFs
- 6.5 Index volatility targeting
Source: Kakushadze, Z. and Serur, J. A. (2018). 151 Trading Strategies. Palgrave Macmillan. SSRN 3247865. Summaries are our own.