"Mean Reversion, Leverage and Tactical Asset Allocation"
Mean Reversion & Leverage in Tactical Asset Allocation The first article provides a view of the difference between an investment strategy that manages to value and managing to mean reversion. Managing to mean reversion means that a portfolio manager will shift asset allocations not only when the return of an asset is worse than a lower-risk asset return but also whenever the extra return available is worse than usual. The article also examines whether to leverage or to concentrate one’s portfolio into risky assets in order to achieve a higher targeted return for the same risk level.
Visualizing hedge fund data: Which Canadian strategies are most correlated and volatile? This brief analysis introduces a technique called biplots to visualize the correlation and volatility of hedge fund strategies in Canada. The analysis indicate that Event-Driven strategies are not correlated to the typical equity strategies and negatively correlated to Market Neutral strategies.
Simple accounting ratios: do they help in investment decisions? The article cautions analysts/portfolio managers that focus entirely on common accounting ratios to make investment decisions. The general belief by investors that companies that have high levels of earnings per dollar of investment (i.e. a low Price-To-Earnings (“P/E”) ratio) is usually considered better value than shares of companies offering a lower level of earnings per dollar invested (i.e., high P/E stocks) is questioned. The article attempts to explain that a company’s cash flow and, ultimately, its market value stems from its long-term growth in revenues and profits from its return on invested capital relative to its cost of capital.
"The tale of 3 market fallacies"