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.
15.3.1Distressed assetsReference
Distress risk puzzle – risk management
The healthy-minus-distressed portfolio has a time-varying market beta; scale it by its forecast volatility to avoid crash periods.
Why there is no chart
Bankruptcy probabilities and the portfolio’s return history.
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
- 15.3.1 · Distressed assets
- Asset class
- Distressed
- In the lab
- Explained, not backtested
Distress risk puzzle – risk management (15.3.1)
The healthy-minus-distressed portfolio has a time-varying market beta; scale it by its forecast volatility to avoid crash periods.
Data it needs
Bankruptcy probabilities and the portfolio’s return history.
More in Distressed assets
- 15.1 Buying and holding distressed debt
- 15.2 Active distressed investing
- 15.2.1 Planning a reorganisation
- 15.2.2 Buying outstanding debt
- 15.2.3 Loan-to-own
- 15.3 Distress risk puzzle
Source: Kakushadze, Z. and Serur, J. A. (2018). 151 Trading Strategies. Palgrave Macmillan. SSRN 3247865. Summaries are our own.