Portfolio 1: Velox + QuantStrat - Investment Analysis
Date: January 16, 2025 Recommendation: APPROVE Proposed Allocation: Core portfolio allocation (100% of strategy capital)
1. Executive Summary
| Metric | Value | Source |
|---|---|---|
| CAGR | 14.91% | _summary.csv (CVX optimal) |
| Annualized Volatility | 1.36% | _summary.csv |
| Sharpe Ratio | 8.01 | _summary.csv |
| Max Drawdown (Velox) | -0.48% | full_period/allocator_summary.csv |
| Max Drawdown (QuantStrat) | -1.20% | full_period/allocator_summary.csv |
Investment Thesis: This two-strategy portfolio combines Velox (high-frequency/market-neutral) and QuantStrat (systematic trading) to deliver exceptional risk-adjusted returns. The near-zero correlation between strategies (-0.047) provides genuine diversification, while the CVX-optimized allocation (65% Velox / 35% QuantStrat) maximizes Sharpe ratio while respecting position limits. The portfolio achieved a Sharpe ratio above 8.0 across the full 2023-2025 period with extraordinarily low volatility.
Key Strengths:
- Exceptional Sharpe ratios across all periods (5.0 - 9.6)
- Near-zero inter-strategy correlation provides true diversification
- Consistent performance: positive returns in all three years
- Extremely low drawdowns (<1.2% at strategy level)
2. Data Quality
| Metric | Value |
|---|---|
| Date Range | 2023-01-01 to 2025-01-16 (YTD) |
| Trading Days | ~530 (full period) |
| Data Gaps | None identified |
| Strategies Included | Velox, QuantStrat |
Data Quality Assessment: The dataset spans approximately 2 years of continuous daily data. Both strategy return series show no gaps or anomalies. Factor regression data was not included in this run; recommend adding factor analysis in future iterations to understand systematic exposures.
3. Performance Analysis
3.1 Strategy-Level Performance (Full Period)
| Strategy | Ann. Return | Ann. Vol | Information Ratio | Max Drawdown |
|---|---|---|---|---|
| Velox | 17.69% | 1.54% | 9.53 | -0.48% |
| QuantStrat | 6.87% | 1.64% | 3.48 | -1.20% |
Source: full_period/allocator_summary.csv
3.2 Annual Breakdown (CVX Optimal Portfolio)
| Year | CAGR | Volatility | Sharpe | Notes |
|---|---|---|---|---|
| 2023 | 14.52% | 1.19% | 8.86 | Strong risk-adjusted returns |
| 2024 | 19.40% | 1.61% | 9.57 | Best absolute and risk-adjusted year |
| 2025 YTD | 10.01% | 1.19% | 5.06 | Solid start to year |
| Full Period | 14.91% | 1.36% | 8.01 | Consistent excellence |
Source: _summary.csv
3.3 Performance Commentary
Both strategies deliver consistent positive returns with exceptional Sharpe ratios. Velox is the dominant alpha generator (17.69% return, 9.53 IR), while QuantStrat provides meaningful diversification with respectable standalone returns (6.87%, 3.48 IR). The 2024 period demonstrated the portfolio's ability to scale returns during favorable conditions while maintaining risk discipline.
4. Factor Exposure
Status: Factor analysis not performed for this portfolio run.
Recommended Follow-Up:
- Run factor regression against BTC, ETH, and funding rate factors
- Assess systematic beta exposures and regime dependencies
- Evaluate R-squared to determine idiosyncratic vs. factor-driven returns
5. Risk Analysis
5.1 Correlation Matrix
| Velox | QuantStrat | |
|---|---|---|
| Velox | 1.000 | -0.047 |
| QuantStrat | -0.047 | 1.000 |
Source: full_period/correlation.csv
Correlation Assessment: The strategies exhibit near-zero correlation (-0.047), indicating genuine diversification. This is optimal for portfolio construction as it implies the strategies respond to different market signals or operate on different timeframes. The slight negative correlation may provide modest downside protection during adverse periods for either strategy.
5.2 Drawdown Analysis
| Strategy | Max Drawdown | Context |
|---|---|---|
| Velox | -0.48% | Excellent drawdown control |
| QuantStrat | -1.20% | Acceptable for return profile |
Drawdown Commentary: Both strategies demonstrate exceptional drawdown control. Velox's max drawdown of only 0.48% over a 2-year period is remarkable. QuantStrat's 1.20% drawdown remains well within acceptable bounds for a systematic strategy.
5.3 Key Risks
| Risk | Severity | Mitigation |
|---|---|---|
| Velox Concentration | Medium | CVX optimizer hits 65% cap; monitor for capacity constraints |
| QuantStrat Underperformance | Low | Lower IR (3.48) acceptable given diversification value |
| Correlation Regime Shift | Low | Monitor rolling correlation; review if sustained >0.3 |
| Limited History | Medium | 2-year track record; continue monitoring through market cycles |
6. Portfolio Construction
6.1 Optimization Methods Comparison
| Method | Velox | QuantStrat | Ann. Return | Ann. Vol | Sharpe |
|---|---|---|---|---|---|
| Equal Weight | 50.0% | 50.0% | 13.06% | 1.32% | 6.84 |
| MinVar | 50.0% | 50.0% | 13.06% | 1.32% | 6.84 |
| Tangency | 82.7% | 17.3% | 17.12% | 1.56% | 8.43 |
| CVX Optimal | 65.0% | 35.0% | 14.91% | 1.36% | 8.01 |
Source: full_period/weights.csv, full_period/weights_stats.csv, full_period/weights_cvx.csv
6.2 CVX Optimizer Details
| Metric | Value |
|---|---|
| Solver | SCS |
| Status | Optimal |
| Position Cap Applied | 65% (binding on Velox) |
| Turnover (1-norm) | 1.0 |
| Solve Time | 0.08ms |
6.3 Bootstrap Stability Analysis
| Asset | Mean Weight | Std Dev | 95% CI |
|---|---|---|---|
| Velox | 65.00% | 0.00% | [65.00%, 65.00%] |
| QuantStrat | 35.00% | 0.00% | [35.00%, 35.00%] |
Stability Assessment: The CVX optimal weights show essentially zero variance under bootstrap resampling, indicating high confidence in the allocation. The position cap on Velox (65%) is binding, which constrains the optimizer from allocating even more to the highest-performing strategy.
7. CIO Recommendation
Decision: APPROVE
Recommended Allocation: CVX Optimal (65% Velox / 35% QuantStrat)
Rationale:
- Exceptional Risk-Adjusted Returns: Sharpe ratio of 8.01 with 14.91% CAGR represents institutional-quality performance
- True Diversification: Near-zero correlation provides genuine risk reduction
- Drawdown Control: Max drawdowns under 1.2% demonstrate strong risk management
- Consistent Performance: Positive returns and high Sharpe ratios across all periods
- Stable Optimal Weights: Bootstrap analysis confirms weight stability
Risk Limits
| Limit | Threshold | Action |
|---|---|---|
| Portfolio Drawdown Warning | -2.0% | Review sizing and market conditions |
| Portfolio Drawdown Hard Stop | -4.0% | Reduce exposure by 50% |
| Strategy Correlation Shift | >0.30 for 20 days | Formal review of diversification value |
| Sharpe Degradation | <3.0 for 3mo rolling | Review strategy performance |
| Single Strategy Cap | 65% | Maintain cap; review if Velox capacity changes |
Outstanding Items
- Conduct factor exposure analysis to assess systematic risks
- Establish capacity limits for each strategy
- Document Velox execution and latency dependencies
- Stress test portfolio against historical crypto drawdowns (e.g., May 2021, Nov 2022)
- Implement automated monitoring for correlation regime shifts
Approval Conditions
- Complete factor analysis within 30 days to assess beta exposures
- Maintain 65% position cap on Velox pending capacity review
- Implement daily drawdown monitoring with automated alerts at -1.5%
- Quarterly review of correlation stability and Sharpe ratio trends
Data Sources:
/Users/syntax/projects/finance/allocator_analysis/reports/portfolio1_velox_quantstrat_2023_2025/_summary.csv/Users/syntax/projects/finance/allocator_analysis/reports/portfolio1_velox_quantstrat_2023_2025/full_period/allocator_summary.csv/Users/syntax/projects/finance/allocator_analysis/reports/portfolio1_velox_quantstrat_2023_2025/full_period/correlation.csv/Users/syntax/projects/finance/allocator_analysis/reports/portfolio1_velox_quantstrat_2023_2025/full_period/weights.csv/Users/syntax/projects/finance/allocator_analysis/reports/portfolio1_velox_quantstrat_2023_2025/full_period/weights_cvx.csv/Users/syntax/projects/finance/allocator_analysis/reports/portfolio1_velox_quantstrat_2023_2025/full_period/weights_cvx_stats.csv/Users/syntax/projects/finance/allocator_analysis/reports/portfolio1_velox_quantstrat_2023_2025/full_period/weights_cvx_bootstrap.csv