Tellurian - Investment Analysis
Date: January 14, 2025 Recommendation: CONDITIONAL APPROVE Proposed Allocation: 3-5% of portfolio
1. Executive Summary
| Metric | Value | Source |
|---|---|---|
| CAGR | 70.22% | _summary.csv |
| Annualized Volatility | 40.48% | _summary.csv |
| Sharpe Ratio | 1.64 | _summary.csv |
| Max Drawdown | -33.84% | Calculated from returns data |
Investment Thesis: Tellurian is a BTC-ETH long/short strategy with a 6-year track record delivering exceptional absolute returns (2,304% cumulative). The strategy exhibits strong negative correlation to BTC (-0.84), functioning as a potential hedge during crypto drawdowns.
Key Conditions:
- Verify operational infrastructure and risk controls
- Confirm fee structure and liquidity terms
- Establish position limits given high volatility profile
- Monitor for performance decay (2025 YTD Sharpe significantly lower)
2. Data Quality
| Metric | Value |
|---|---|
| Date Range | 2020-01-01 to 2025-12-21 |
| Trading Days | 2,182 |
| Data Gaps | None identified |
| Zero-Return Days | 14 (0.64%) |
Data Quality Assessment: Complete daily series with no gaps. Returns exhibit significant positive skewness (2.37) and fat tails (kurtosis 17.77), consistent with trend-following or momentum overlay component.
3. Performance Analysis
3.1 Annual Breakdown
| Year | CAGR | Volatility | Sharpe | Max Drawdown |
|---|---|---|---|---|
| full_period | 70.22% | 40.48% | 1.64 | -33.84% |
| year_2020 | 478.13% | 58.73% | 8.07 | -20.56% |
| year_2021 | 183.22% | 96.43% | 1.86 | -24.30% |
| year_2022 | 14.41% | 41.40% | 0.25 | -27.49% |
| year_2023 | 106.19% | 44.79% | 2.28 | -19.22% |
| year_2024 | 77.88% | 57.89% | 1.28 | -14.95% |
| year_2025_ytd | 13.36% | 16.47% | 0.57 | -13.62% |
Source: _summary.csv for CAGR/Vol/Sharpe; Max Drawdown calculated from returns data
3.2 Performance Commentary
Performance is heavily front-loaded with 2020 delivering exceptional returns (478% CAGR, 8.07 Sharpe) during the COVID recovery. Subsequent years show declining risk-adjusted performance: 2022 bear market produced only 14% return with 0.25 Sharpe, and 2025 YTD shows concerning deceleration (0.57 Sharpe). The strategy's high volatility (40%+) requires careful position sizing.
4. Factor Exposure
| Factor | Beta | t-stat | p-value |
|---|---|---|---|
| BTC | -0.724 | -51.99 | <0.001 |
| ETH | -0.002 | -0.19 | 0.846 |
| funding_btc | 0.159 | 3.39 | 0.001 |
| funding_eth | -0.053 | -1.69 | 0.091 |
| Metric | Value |
|---|---|
| R-squared | 71.63% |
| Idiosyncratic Return | 28.37% |
Source: full_period/factor_detail/Tellurian_betas.csv
Factor Analysis: Strong negative BTC beta (-0.72) indicates the strategy profits when BTC declines, functioning as a hedge. High R-squared (71.6%) means most returns are explained by BTC exposure rather than pure alpha. The negative beta is statistically significant (t=-52).
5. Peer Comparison
| Strategy | CAGR | Volatility | Sharpe | Max Drawdown |
|---|---|---|---|---|
| Tellurian | 70.22% | 40.48% | 1.64 | -33.84% |
| Highwater | 55.53% | 12.15% | 4.24 | -9.19% |
| Velox | 23.14% | 2.31% | 8.28 | -0.48% |
| Persistent | 25.30% | 3.59% | 5.94 | -1.46% |
| MT2X | 26.80% | 12.10% | 1.89 | -6.75% |
| Quantstrat | 8.40% | 3.98% | 1.10 | -5.03% |
Source: Peer data from reports/<peer>/_summary.csv
Relative Positioning: Tellurian delivers the highest absolute returns but the lowest Sharpe ratio among peers (1.64 vs 4.24-8.28). Volatility is 3-17x higher than alternatives. The strategy occupies a distinct niche as a high-octane, negatively-correlated component rather than a core holding.
6. Risk Assessment
6.1 Key Risks
| Risk | Severity | Mitigation |
|---|---|---|
| High volatility (40%+) | High | Limit position size to 3-5% max |
| Performance decay (declining Sharpe) | Medium | Monitor rolling 12-month Sharpe |
| Concentration in BTC short exposure | Medium | Pair with long-biased strategies |
| Drawdown magnitude (-34% peak) | High | Strict drawdown triggers |
6.2 Outstanding Due Diligence
- Verify source of daily marks (exchange prices vs NAV)
- Confirm management and performance fee structure
- Review live vs. backtested period boundaries
- Obtain third-party audit or administrator verification
- Assess slippage and execution cost assumptions
- Evaluate capacity constraints at scale
7. Recommendation
Decision: CONDITIONAL APPROVE
Allocation: 3-5% of crypto allocation (hedging sleeve)
Risk Limits:
| Limit | Threshold | Action |
|---|---|---|
| Drawdown Warning | -15% | Review position |
| Drawdown Hard Stop | -25% | Reduce to 50% |
| Sharpe Degradation | <0.5 for 6mo | Exit position |
| Volatility Spike | >60% annualized | Review sizing |
Conditions for Approval:
- Complete operational due diligence (administrator verification, audit)
- Confirm fee structure does not exceed 2/20
- Establish monthly reporting cadence
- Implement correlation monitoring vs. BTC
Rationale: Tellurian provides valuable portfolio diversification through its negative BTC correlation (-0.84). However, limited position sizing (3-5%) is warranted given: (a) high standalone volatility, (b) declining performance trajectory, and (c) most returns attributable to BTC short exposure rather than alpha.
Data Sources:
reports/tellurian/_summary.csvreports/tellurian/full_period/factor_detail/Tellurian_betas.csvdata/strategies/tellurian_combined.csv(for accurate drawdown calculation)