Diversified Statistical Arbitrage: Dynamically Combining Mean Reversion and Momentum Strategies

ArXiv ID: ssrn-1666799 “View on arXiv”

Authors: Unknown

Abstract

This paper presents a quantitative investment strategy that is capable of producing strong risk-adjusted returns in both up and down markets. The strategy combi

Keywords: Quantitative investment strategy, Risk-adjusted returns, Momentum, Reversal, Portfolio construction

Complexity vs Empirical Score

• Math Complexity: 7.5/10
• Empirical Rigor: 6.0/10
• Quadrant: Holy Grail
• Why: The paper employs advanced mathematical techniques like Principal Component Analysis (PCA) with eigenvalues and eigenvectors for decomposition, indicating high mathematical density. It also presents in-sample and out-of-sample performance analysis across multiple market environments (2008-2009), suggesting significant empirical testing and implementation focus.

  flowchart TD
    A["Research Goal: Develop a Quantitative Investment Strategy"] --> B["Methodology: Diversified Statistical Arbitrage"]
    B --> C["Data: Historical Stock Prices & Market Data"]
    C --> D{"Compute Signal Generation"}
    D --> E["Mean Reversion Strategy"]
    D --> F["Momentum Strategy"]
    E & F --> G["Dynamic Portfolio Construction"]
    G --> H["Key Findings: Strong Risk-Adjusted Returns"]
    H --> I["Outcomes: Effective in Both Up & Down Markets"]