This podcast episode delves into the world of statistical arbitrage and trend following strategies. Nicolas Mirjolet, CEO and Co-Head of Research at Quantica Capital, shares his insights and experiences in operating a statistical arbitrage fund and transitioning to trend following. The episode highlights the challenges of scaling an independent business on statistical arbitrage due to high turnover and trade execution costs. It explores the advantages of larger players in terms of breadth of alphas and netting trades, as well as the evolving landscape of statistical arbitrage. Quantica's trend following strategy is discussed, emphasizing its focus on liquid markets and ability to scale. The multivariate approach to trend following, which considers relative price pressures and market covariance, is explained. The episode also explores the benefits of the multivariate approach, including its robustness and potential for generating higher risk-adjusted returns. The strategy leverages thousands of signals to measure trends and aims to perform well across all market environments. The importance of maintaining style consistency while allowing for innovation is highlighted, as well as the optimal signal universe for model input and the role of risk factor diversification. The changing trend environment and the contrasting performance of trend following in different years are also examined. The episode concludes by discussing the trade-off between diversification and robust absolute return strategies in trend following, highlighting the importance of balancing liquidity profiles and delivering the best possible product.
