Market-Neutral Portfolios: A Solution Based on Automated Strategies
Keywords:
portfolio optimization, market neutral portfolio, automated trading systems, computational finance
Abstract
The equity market is known for its volatility and dependence on a number of factors that influence its trend This characteristic inhibits many investors from entering this market due to the fear of facing losses in their investments A potential solution to this problem is to build portfolios that are neutral regarding their reference market A neutral portfolio is constructed in such a way that its returns are obtained regardless of the trend using automated trading systems ATS One of the advantages of these systems is that they carry out negotiations automatically increasing speed and eliminating the emotional factor of manual negotiations The proposed solution in this manuscript minimizes the correlation of portfolio returns with market index returns and uses the Walk Forward WF test for validation Several portfolios are considered and the results demonstrate that in addition to being neutral their returns exceeded the index returns The best results were obtained for the portfolios that used a greater amount of automated strategies and made use of long short trades
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2023-06-21
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