Diversification by forecast parameters
Beyond Asset Classes: Parameter-Based Diversification
QuantWave's multi-dimensional forecasting system enables sophisticated diversification across signal characteristics, not just traditional asset classes.
Key Diversification Dimensions
1. Time Horizon Diversification
- Short-Term (1-5 days): 20-30% of portfolio
- Medium-Term (1-4 weeks): 40-50% of portfolio
- Long-Term (1-6 months): 20-30% of portfolio
2. Probability Distribution
| Confidence Band | Suggested Weight | Position Sizing |
|---|---|---|
| High (75%+) | 40-50% | Full size |
| Medium (60-74%) | 30-40% | Reduced size |
| Low (50-59%) | 10-20% | Minimum size |
Advanced Parameter Diversification
1. Strategy Type Mix
- Trend Following: 40-60%
- Mean Reversion: 20-30%
- Event-Driven: 10-20%
- Arbitrage: 0-10%
2. Risk Profile Balance
- Low Risk: Core positions (50-60%)
- Medium Risk: Strategic positions (30-40%)
- High Risk: Opportunistic (10-20%)
QuantWave Diversification Tools
1. Parameter Matrix
- Visual mapping of forecast characteristics
- Identifies concentration risks
- Suggests balancing opportunities
2. Correlation Analyzer
- Measures strategy interdependence
- Tests portfolio stress scenarios
- Optimizes parameter combinations
Implementation Framework
The 5-Step Parameter Balance
- Analyze current parameter distribution
- Identify over-concentrated dimensions
- Select complementary forecasts
- Adjust position sizing accordingly
- Monitor correlation effects
Common Mistakes
- Overloading one probability band
- Ignoring strategy correlations
- Mismatching time horizons
- Over-optimizing parameter sets
Performance Metrics
- Parameter contribution analysis
- Strategy correlation impact
- Drawdown by parameter group
QuantWave's parameter-based diversification provides a sophisticated approach to building robust portfolios. By systematically balancing across multiple forecast dimensions, investors can achieve more stable returns regardless of market conditions.