Inputs from Ilya on loss aversion and reversion to mean trading strategy

• The key hypothesis: customers of established companies with short term negative sentiment are more sticky that assumed

  • The key ratio of concern will be the Sharpe ratio measured by monthly average as well as yearly average
  • To bench mark against S&P index to figure out if there is in fact an Alpha when deploying such strategy
  • Fund clients expect a returns during market down turns as well as during bull markets
  • need to figure out how to avoid the buy trigger which will continuously trigger 2.5% losses during a period of market downturn.
  • A good way to hedge and generate leverage would be to short the same amount on the S&P index (SPY) every time you attempt buy into a position utilizing the strategy.
  • Miscellaneous to take into account

  dividend paid out by S&P index as well as any paid out by strategy

  Average dividend for the S&P is 2%

  • Standard deviation for S&P versus strategy

  S&P standard deviation is 0.9%

  • Transactions cost
  • borrowing cost for shorting S&P during period

Related references

- [Trading history](https://docs.google.com/spreadsheets/d/1_96bn2RYJdDVlbWKTVoL0Ru6vmeulft5rMUL_dxA0b8/edit?usp=sharing)
- [Documentation on loss aversion and reversion to mean](https://garyteh.com/2018/04/trading-strategy-capitalizing-on-loss-aversion/)
- [Link to signal dashboard on Slack](https://join.slack.com/t/getdataio/shared_invite/enQtNTg5MjMxNzY5OTM4LTc3MDg2ODdiNDNhYmZkNDExNDIzZWM3MTc0NDFiZDY2ZjIwYzA3MDRhYmM5M2UzZWQ0ZjA3YWMwOGRlNDA4ZDY)
- [Quantitative momentum](https://garyteh.com/2019/03/book-summary-quantitative-momentum/)