The Axioma US Equity Factor Risk Model: Trading Horizon (“Trading Model”) provides accurate portfolio risk exposures and forecasts for risk horizons up to a month, better capturing the short-term impact of rapidly changing market conditions. The Trading Model is an addition to the existing suite of Axioma US Equity Factor Risk Models which includes short-horizon, medium-horizon, statistical and fundamental variants.
Who is the Trading Model for?
- Equity hedge fund managers
- Quantitative asset managers
- Algorithmic traders
- Sell-side traders
- Risk managers
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Key benefits
Get daily insights
Capture the day-to-day changes in risk of the trading book and other portfolios with short investment horizons.
Manage risk
Manage the risk of high turnover strategies and rebalance daily or weekly.
Test strategies
Implement smarter, more efficient, short-term hedging strategies.
Rebalance with confidence
Understand the trade-off between risk (tracking error to benchmark) and market impact (slippage).
Understand risk drivers
Capture the event-driven risk stemming from earnings announcements, short-squeezes and other infrequent events.
Model delivery and access
- Daily updates are available as a flat file and application file format.
- The Trading Model can be integrated with Axioma Portfolio OptimizerTM, Axioma Portfolio AnalyticsTM and Axioma RiskTM.
- Flat files can be used with third-party portfolio construction, performance analytics, and risk management and trading solutions.
Model factors
In addition to the existing coverage of 14 style and 15 statistical factors available in all Axioma US factor models, the Trading Model includes five new factors as well as some updated factor definitions to reflect the shorter horizon:
Hedge Fund Crowding
Captures the risk and return differences of stocks based on how widely they are held by hedge funds (a measure of concentration risk). Securities with high crowding scores are expected to outperform the market until a liquidity event occurs.
Earnings Variability
Captures the risk and return differences due to uncertainty around the company’s earnings and sales numbers. Companies that have high earnings variability scores tend to underperform relative to the market.
Downside Risk (volatility)
Explains the risk and return differences for the worst-performing stocks, those that have negative excess returns relative to the worst market return of the last year. Stocks with high downside risk scores tend to underperform relative to the market.
Short Interest
Explains the risk and return of stocks based on the degree to which a stock is being shorted (ratio of shares sold short and shares available for shorting). Securities that have high short interest scores tend to underperform relative to the market.
One Day Reversal
Captures the risk and return of stocks based on the previous day’s return. This factor is particularly relevant to capture risk in short-horizon strategies that rebalance daily.
Examples
The Trading Model offers faster reaction to and faster retreat from market disruptions.
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The model also incorporates an implied volatility adjustment that more accurately captures market uncertainty around events such as earnings announcements.
Blog Post
Qontigo’s new US Equity Trading Horizon Model: A crisp view of ultra-short-term risk—and longer-term implications
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Press Release
Qontigo adds US trading model to Axioma line of global equity factor risk models
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Brochure
Axioma US Equity Factor Risk Model: Trading Horizon
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